Stansberry Research’s analysis of Berkshire Hathaway’s compounding machine

When it comes to investing, one name shines above the rest: Warren Buffet. In many ways, he has become the king of compound gains and consistent growth. His company Berkshire Hathaway is now valued at nearly 500 billion dollars and has achieved this milestone through very principled and consistent investment techniques (Thedailyrecord).

All that said, there is some analysis that indicates that the company may not experience the same future success that it enjoyed in previous decades. While controversial, the analysts at Stansberry Research bring up many valid points the show just how different the company is today from what it was in decade past.

Stansberry Research was quick to point out the differences in the insurance markets, as well as the availability for new insurance companies to be acquired. In the early days of Berkshire Hathaway Warren Buffet gained capital by acquiring insurance companies that had a large amount of “float.” in many cases, Buffet was able to buy for half of their available float balance, meaning that so long as they work insurance companies to acquire Berkshire Hathaway could grow the amount of investible capital they have free.

Today in most insurance companies have been acquired or conglomerate it by larger companies, Berkshire Hathaway included. Stansberry Research points out the many of the early gains enjoy by Berkshire Hathaway simply are not available due to the unavailability of purchasable insurance companies with float available.

Stansberry also mentions did this issue also compounds further when you realize the types of businesses that Berkshire Hathaway is getting involved in. Rather than investing in companies whose future dominance seems to be inevitable such as Coca-Cola, the company has branched out and investing lesser known, less stable companies. We cannot say exactly why this is happening, but it is entirely possible that there is simply not the same opportunity in these classic investments.

As a whole, Stansberry Research does an excellent job pointing out the strengths of the company first. They are not entirely critical of Berkshire Hathaway in order to be contrarian, instead, they focus on results first. These results show that while Berkshire Hathaway has enjoyed great success in the past, their current strategic decisions are not the same as the ones that got them to where they are today.


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