Over time, I believe return on investment will approximate the return on capital of the business. I believe Berkshire’s current businesses benefit from sustainable economic advantages which will allow them to prosper for decades to come. Additionally, the business is run by exceptional managers which I believe have a large circle of competence. More importantly, I believe they know what they don’t know. Despite Berkshire’s vast scale, I believe market participants are currently undervaluing the business based on its long term prospects. Lastly, if Berkshire can buyback large amounts of share float without investors reflecting the reduced share count in the share price, long term investors will prosper tremendously.
I base my challenge on three arguments; 1. Diseconomies of scale 2. The change in management structure and trust 3. Disruption from a possible technological singularity between now and 2039.
Ad 1. Diseconomies of scale: As Berkshire Hathaway has grown, the universe of possible investments it can consider that move the needle has shrunk, giving it a disadvantage compared to smaller companies in the S&P 500.
Ad 2. The change in management structure: Berkshire Hathaway has profited from having Warren E. Buffett in a position of benevolent dictator for life. Mr. Buffett was able to allocate capital freely between public equity and subsidiaries depending on mood swings in the markets. Many deals and much management was done based on trust. The current plan if I understand correctly is not to have a single successor, but to break up his responsibilities. This could lead to friction and mistrust. Bureaucracy is a threat.
Ad 3. A possible "technological singularity" before 2039: See http://longbets.org/1/ regarding the development of an artificial general intelligence before 2029. It is impossible to predict the exact consequences, but it seems to me that Berkshire Hathaway is not positioned to be one of the companies that could most profit from a possible intelligence explosion.