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I recently read Robert G. Hagstrom's The Warren Buffett Way. The author digested some of Buffett's principles, the top one (translated from German) would be

Is the company simple and easy to understand?

I started to read some Annual Reports from Berkshire and while Buffett builds up confidence for his and his team's management (which would be one of the next principles in the book above) I actually was surprised about the complexity of the Berkshire subsidiaries. Various insurances, various locations, various industries, housing, manufacturer, leasing, infrastructure and many many more are part of what constitutes Berkshire (oh and I forgot the investment part :) )

So the question actually came up: Would Buffett actually theoretically buy stock of his own company? (Beside the fact that he already owns most of it anyway :D)

While Berkshire appears to be very diverse, as far as I understood the book, diversity is not a special property Buffett actually looks at. Diversity reduces risk but also requires deeper knowledge about the facets of the doings of a company, making extrapolating growth more complex?

Buffett provides a nice way of communicating numbers via his "see-through earnings" but this is only the "numbers" part of what is described as his way of investment. I thereby wonder whether from a "focus investment" point of view Berkshire is actually simple and easy to understand?

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  • This is subjective, what's simple and easy to understand varies by person. – Hart CO Jun 27 '20 at 14:57
  • @HartCO I fully agree. The author of the book never fully defined this subjective matter. However more often than not it is simply me who errs because I missed an important detail. This thread is more of a validation of my assumptions of whether for instance at the time when the book was written, Berkshire may actually have been "simple" and so I would be missing the time component of my question. – Samuel Jun 27 '20 at 18:47
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Berkshire certainly was a less complex company when Buffett bought it - just a simple textile company that he bought partially out of spite for a lowball offer of his shares. According to Wikipedia, he later claimed it was a poor decision from an investment standpoint (he would have made millions if he had bought other investments instead). His general strategy ever since has been to buy a controlling stake of a company for less than what it's worth, put in better management, and turn the company around. After 50+ years of these acquisitions, BH has become an incredibly diverse conglomerate.

Warren Buffett probably wouldn't buy stock in BH today, but mostly because he couldn't do a better job than himself as the owner.

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