# Berkshire Hathaway class B



## He-Man (15 Aug 2014)

I'm thinking of putting circa 1000 euro into these stocks and holding for 30+ years. 

Berkshire is rather like a mutual fund without the fees, is it not?

Curious as to whether any of the regulars here hold any class a or b stocks in Berkshire or, if not, why not.


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## Brendan Burgess (15 Aug 2014)

Hi He-man 

Our posting guidelines don't allow the discussion of the prices of individual shares. But we are allowed to discuss technical aspects of shares. 

A mutual fund is valued every day based on the exact value of its underlying assets. 

Berkshire Hathaway is like any other share where the market demand and supply determines the price.  

If BH was a mutual fund, the price today would be its net asset value of $142,000, and not $203,000. So you are paying a premium for expected outperformance. 

This premium can rise and fall.  For example, if Buffett was hit by a truck tomorrow, I would expect the price to fall significantly. 

BH has expenses, which would be the equivalent of fees. I imagine that they are very low as a percentage.


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## He-Man (15 Aug 2014)

Hi Brendan, you're right, the fees are way below even a tenth of one percent. 

I take your point that it doesn't track the market, but my point was that like an index fund, it's composed essentially of numerous diversified securities. So when you buy Berkshire, you're kind of buying a little piece of the companies it owns, too.


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## Jim2007 (15 Aug 2014)

Brendan Burgess said:


> For example, if Buffett was hit by a truck tomorrow, I would expect the price to fall significantly.



That is about the only thing that Buffett has made a very clear recommendation on ;-)


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## Rory Gillen (17 Aug 2014)

Brendan,

That's only half the point!

If Buffett passed away, as he will one day, the share price of Berkshire might well fall significantly. But that's hardly risk.

Every company that Berkshire owns would continue on contributing not just earnings, cash flows and dividends to Berkshire as before but growth in those earnings, cash flows and dividends also.

What would change is: who would be responsible for the allocation of the new annual cash flows into Berkshire? That's all investors would then have to worry about and while it would be a genuine concern it would relate to no more than 10% of Berkshire's net asset value.

Any sell off on Buffett's passing over and above that 10% would represent a likely opportunity, in my view (macabre stuff of course). There is a free Featured Article available on my website covering Berkshire but as you don't allow discussion on individual shares I'll not post the link.

Rory Gillen
Founder
Gillenmarkets.com


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## Brendan Burgess (17 Aug 2014)

Hi Rory

No problem at all with posting links to discussions of share prices, house prices or anything else.  So here is the link: 

[broken link removed]

He-man was suggesting that Berkshire was like a mutual fund.  My point was that other factors can affect the price of Berkshire shares.  When Buffett dies, the share price may fall. That may not be justified, but it underlines the difference between Berkshire and mutual funds.


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## Rory Gillen (17 Aug 2014)

I agree with that Brendan.


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## Jim2007 (17 Aug 2014)

Brendan Burgess said:


> He-man was suggesting that Berkshire was like a mutual fund.  My point was that other factors can affect the price of Berkshire shares.  When Buffett dies, the share price may fall. That may not be justified, but it underlines the difference between Berkshire and mutual funds.



I think the point to be made is that when you invest in individual stocks you need to know a lot more about the instrument than when you go for a mutual fund.

When Buffet dies, the price may indeed drop as shareholders who have not done their homework will assume it is the end and dump their shares.  On the other hand people who have put in the time researching etc... will know that there are a few people on staff at Berkshire who's track record in investing over the past say 15 years is as impressive as Buffet's and in some cases even more so...


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## RobFer (29 Sep 2014)

Is it fair to say that Berkshire Hathaway stock is a tax efficient way to get diversification? Lacking dividends presumably it reduces the effect of taxes significantly long term?


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## MrEarl (29 Sep 2014)

RobFer said:


> Is it fair to say that Berkshire Hathaway stock is a tax efficient way to get diversification? Lacking dividends presumably it reduces the effect of taxes significantly long term?



I'm not too sure how it's a tax efficient way to get diversification ?

Given it's a US based share, what happens with respect to possible future Capital Gains Tax and Income Tax (if there are dividends, or if there is capital appreciation) ?

Also, lets not forget the currency risk, if it's a USD$ based share & additional future currency transaction costs, if converting the future sale proceeds back into Euro.

All that said, I really do like what I've seen and heard from Warren Buffett over the years.


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## RobFer (29 Sep 2014)

I mean is it is a tax efficient means to get diversification of US stocks? Yes there is currency risk but that is almost inevitable with US stocks. The reason I ask is it tax efficient is that is seems not to pay a dividend. I presume in the long term that would reduce the tax bill a great deal. 



  There is a lot of hype about this stock due to specific periods in the past when it has had stellar performance but even if it just tracks the market average in the future surely it beats many mutual funds or ETFs that just follow US market averages due to its treatment under Irish tax laws  (no dividend taxes, no exit tax). Perhaps I am misunderstanding the relevant taxation though.


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## noproblem (29 Sep 2014)

He Man,
to get back to what you're proposing, I'd say go ahead, but take into a/c not Mr Buffet's passing, but your own and allow for that in your estate. Any type of investment is a gamble, doesn't matter what it is.


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## marathonic (30 Sep 2014)

RobFer said:


> Is it fair to say that Berkshire Hathaway stock is a tax efficient way to get diversification? Lacking dividends presumably it reduces the effect of taxes significantly long term?


 
I think it's an excellent choice if you're one of the many people who has sold an investment property at a loss in recent years and has suffered losses for CGT purposes.


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## landlord (12 Jun 2015)

So in summary.....

The Pros.....
----Actively managed company by none other than me main man Mr Warren Buffet (sorry couldn't help doing the Ali G impersonation)
----good diversification. N.b. This portfolio tracker which gives the current stocks in the fund.
http://www.cnbc.com/id/22130601
----Traded as a U.S. share therefore no stamp duty, capital gains at 33% and loss relief.
----No distribution of dividends therefore avoiding (income tax 20/40%, USC and PRSI And of course the extra admin work in fileing this (form11).
----dividends I guess are reinvested therefore benefiting from the compounding effect.
----very low costs. The website I looked at showed a TER for this share as 0. Can that be correct?

The Cons
----Although diverse it is entirely based on the US market.
----The unpredictable medium to long term ramifications of Buffett's passing?????
----Currency conversion costs and currency risk. If the euro strengthens during the period you are invested in this company it will dampen your profits.
----It is unlikely we will ever see the phenomenal growth rate of past years however we now benefit from the underlying stocks being larger and more stable.

Anything else to add/remove ?


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## MrEarl (15 Jun 2015)

Hello,

Does anyone know if Warren Buffett & Charlie Munger have evern given any public comfort regarding succession planning, at Berkshire Hathaway ?

From the information available on the Wall Street Journal website  here , it seems to me that there is a significant risk to the Board, given a number of it's members are, eh "mature" gentlemen.


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## Brendan Burgess (15 Jun 2015)

Hi landlord

A good summary.


landlord said:


> ----Although diverse it is entirely based on the US market.
> 
> ----Currency conversion costs and currency risk. If the euro strengthens during the period you are invested in this company it will dampen your profits.



This is an argument against having all your money invested in BH. It is not an argument against having it as part of a diversified portfolio. 





landlord said:


> ----dividends I guess are reinvested therefore benefiting from the compounding effect.



I don't think that is an advantage or disadvantage.  I have shares which pay dividends. I reinvest those dividends as I see fit. 

One other attraction of Berkshire Hathaway and all  companies which don't pay dividends, is that they can be useful if you have CGT losses forward on other shares. All other things being equal, a profitable company which does not pay dividends, should have a higher capital gain.


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## landlord (15 Jun 2015)

Brendan Burgess said:


> Hi landlord
> 
> A good summary.
> 
> ...



Thanks Brendan I agree with all your points  
The advantages I can see of an accumulating fund rather than distributing is that. Dividends can attract 52% tax (40% income, 8%USC and 4% PRSI) for the high earner.  We're as if they are reinvested would it be only dividend with holding tax that would apply? (benefiting long term gains)

Also many investors are not as sensible as both you and I. 
Note what Monevator says in this post......


"The advantage of accumulation units is that the *devil-in-you *has no chance to make mischief. The income is rolled up into the runaway snowball of future wealth, and you’ll barely even miss it."

http://monevator.com/income-units-versus-accumulation-units-difference/


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## Jim2007 (15 Jun 2015)

landlord said:


> So in summary.....
> The Cons
> ----Although diverse it is entirely based on the US market.



Not the case, it's holdings provide it with a good exposure to global markets.



landlord said:


> ----The unpredictable medium to long term ramifications of Buffett's passing?????



I can think of at least three Berkshire money managers capable of taking over and indeed at least one of them has been out performing Buffet for some time now.



landlord said:


> ----Currency conversion costs and currency risk. If the euro strengthens during the period you are invested in this company it will dampen your profits.



Given the company's exposure FX changes it is not as simple as that.



landlord said:


> ----It is unlikely we will ever see the phenomenal growth rate of past years however we now benefit from the underlying stocks being larger and more stable.



Since 2010 the price has almost doubled!  It is either very overpriced or there is more growth than you think.


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## landlord (15 Jun 2015)

Jim2007 said:


> Not the case, it's holdings provide it with a good exposure to global markets.
> 
> 
> 
> ...



Thanks Jim..... I guess I need to take a closer look at that Birkshire Hathaway portfolio tracker I posted !!
What is exposure FX changes?


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## Brendan Burgess (15 Jun 2015)

Hi landlord

I have shares in CRH. Some people think that as it's denominated in euro I am only exposed to the euro.

In fact, CRH earns its profits in euro, dollars, sterling and a host of other currencies. So I get natural diversification that way.

Likewise, Berkshire's investee companies might be all based in America, but if they export a good amount of their output, then you have exposure to other currencies.

Brendan


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## Sunny (15 Jun 2015)

Brendan Burgess said:


> Hi landlord
> 
> I have shares in CRH. Some people think that as it's denominated in euro I am only exposed to the euro.
> 
> ...




People think they get diversification this way but they more than often don't because the company will themselves hedge the FX exposure of foreign earnings as much as possible. I have no idea what CRH's hedging policy is but it might be worth while checking it out to see.


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## Brendan Burgess (15 Jun 2015)

Hi Sunny

I see comments from plcs all the time along the lines of "our earnings are higher/lower due to the fall/rise in the euro". Any hedge could presumably be only for a limited period of time.

Brendan


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## invest101 (15 Jun 2015)

"Curious as to whether any of the regulars here hold any class a or b stocks in Berkshire or, if not, why not."

Current price for 1 (one) class a share is $210,760

Current price for 1 (one) class b share is $140.29

If think that for most of us its class b shares if any at all.


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## MrEarl (15 Jun 2015)

Jim2007 said:


> ....I can think of at least three Berkshire money managers capable of taking over and indeed at least one of them has been out performing Buffet for some time now..



But, are the likely to stick around, perhaps take over when Buffet and some of the elder statesmen move on, or perhaps be poached by a competiting firm (and dare I suggest it, possibly at a future time when they are needed most by BH) ?

There are risks here too, its not all comfort Jim2007


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## Jim2007 (16 Jun 2015)

MrEarl said:


> But, are the likely to stick around, perhaps take over when Buffet and some of the elder statesmen move on, or perhaps be poached by a competiting firm (and dare I suggest it, possibly at a future time when they are needed most by BH) ?
> 
> There are risks here too, its not all comfort Jim2007



This is were *you* need to do your own research.  These men have been around for well over 20 years and have significant holdings in BH and furthermore Buffet has already spoke about this.


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## Steven Barrett (16 Jun 2015)

MrEarl said:


> Hello,
> 
> Does anyone know if Warren Buffett & Charlie Munger have evern given any public comfort regarding succession planning, at Berkshire Hathaway ?
> 
> From the information available on the Wall Street Journal website  here , it seems to me that there is a significant risk to the Board, given a number of it's members are, eh "mature" gentlemen.



From the 2014 shareholders letter



> Our directors believe that our future CEOs should come from internal candidates whom the Berkshire board has grown to know well. Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job. Berkshire will operate best if its CEOs average well over ten years at the helm. (It’s hard to teach a new dog old tricks.) And they are not likely to retire at 65 either (or have you noticed?).
> Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to assume the job the day after I die or step down.




Steven
www.bluewaterfp.ie


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## Jim2007 (16 Jun 2015)

Disclosure, just in case... I hold no position in BH, nor am I likely to do so in the future.


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## Steven Barrett (16 Jun 2015)

Jim2007 said:


> furthermore Buffet has already spoke about this.



84 year old and his 91 year old business partner talking about succession planning shocker . 

If people have read just one of his shareholders letters, they'd know that he plans well ahead. 

Steven
www.bluewaterfp.ie


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## MrEarl (16 Jun 2015)

Thanks Steven.

Has the person who is being "groomed" actually been named, do you (or anyone else) happen to know ?


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## Steven Barrett (17 Jun 2015)

I don't follow the BH or the people in it, I just read Buffett's annual shareholder letter as it provides great lessons on how to invest successfully. I haven't seen his name in the letter.


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## Jim2007 (17 Jun 2015)

MrEarl said:


> Has the person who is being "groomed" actually been named, do you (or anyone else) happen to know ?



Research... remember!  I believe that Buffett has at least mentioned one of the three I referred to, but I can't remember if it was at the AGM or in the annual report.  In doing so he mentioned that this person had out performed him on several occasions and indeed on one occasion if he had not then BH would have actually been down as Buffett turned in a negative result! Now it is up to you to do the digging.


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## Steven Barrett (17 Jun 2015)

Jim2007 said:


> Research... remember!  I believe that Buffett has at least mentioned one of the three I referred to, but I can't remember if it was at the AGM or in the annual report.  In doing so he mentioned that this person had out performed him on several occasions and indeed on one occasion if he had not then BH would have actually been down as Buffett turned in a negative result! Now it is up to you to do the digging.



You don't have to dig very much. Put "Buffett's successor" into Google and you'll even get a picture of him!


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## Jim2007 (18 Jun 2015)

SBarrett said:


> You don't have to dig very much. Put "Buffett's successor" into Google and you'll even get a picture of him!



Another one who's trades are always interesting to watch: Lou Simpson – ex GEICO ;-)


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## daheff (24 Jun 2015)

Brendan Burgess said:


> Hi landlord
> 
> I have shares in CRH. Some people think that as it's denominated in euro I am only exposed to the euro.
> 
> ...


The exposure is only to the level of unhedged position. (or if their Treasury team are actively taking bets on currencies).



Brendan Burgess said:


> I see comments from plcs all the time along the lines of "our earnings are higher/lower due to the fall/rise in the euro". Any hedge could presumably be only for a limited period of time.
> 
> Brendan



It depends on how much of their exposure they hedge. Part of that is also dependent on how certain they are of cashflows outside their reporting currency (of the parent).They may only hedge 20%/50%/80% depending on how certain they are of the inflows/outflows.

there could be a number of other one offs that occur that they cant foresee or hedge in advance.


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