My portfolio updates and investment journey

Hi Mudit @Mudit.Kushalvardhan , thanks for making me read Warren’s partnership letters. I wanted to be sure what Warren did early in the years and now. I wanted to understand what he did and what we understand is there any mismatch. What was his investing style and what is he doing now. It was quick read so please do not fully judge Mr Warren based on what i just say here.

Lets look at his/his firm’s (Berkshire Hathaway’s – BH) most touted investment, Apple, in recent years. It accounts for about 50% of BH’s equity portfolio right? We can just google and find it out no rocket science and that whats all is there.

As of 2023 for BH, Apple on cost basis is about 36 billion dollars and based on market value its ~180 billion dollars. Sounds huge right?

However, lets go back to 2016 when BH first time bought Apple for 6.7 billion dollars. Huge amount right? No, it was just 2.4% of BH’s networth of 283 billion.

Now another interesting point is BH did not buy everything at one go, soch kar samajh kar aur invest kiya. They put additional 14 billion dollars in 2017, but again on cumulative cost basis it was just 6% of net worth.
You can see below table on cost basis it never crossed more than 10% of networth:

However, on market value basis it reached over 30% of networth and ~50% of equity portfolio in 2023. So again an outcome rather than an input.

Now lets go back to his partnership era starting from 1956 to 1969 (though not very sure of ending period). Did he concentrate? Yes he did? But what was his investing style? Can we manage or do we have ability to do that? Lets delve into it more:

Mr. Buffet worked in partnership model where he invested for himself and his partners. He had mainly three categories of investments: Generals, Work-outs and controls.

Generals is like what you and me do here just buy pulicly listed stocks and hope for returns in line with earnings or market movements. The intent of having some generals was to take them to control category (increase stake to have majority control).

Work-outs were like what we call special situations.

Controls were the positions where he would take controlling stakes in companies to influence the decision of board or promoter to extract the underlying value. For example his one of the position in 1959 was 35% of his portfolio. You can read on Sanborn Map in his 1960 letter he beautifully explained how they materialised the value of the business. This in current era was done by Carl Icahn and Bill Ackman. I think Bill Ackman has left the activist kind of style.

So the point is he always wanted to be in controls situations so he used to concentrate. Can we get into controls situations? No i dont have that much money otherwise i would not be writing here.

Having said that, my point is not that concentration is bad or should be avoided. We should know the full context on people we follow. By the way Warren said here something on concentartion and he said he will not advise anyone: https://www.youtube.com/watch?v=X99oT7WxGmo however lovely Charlie also has a quip on the ones who advised to diversify. Very interesting.

Coming back to the point I shall ask few questions (I have loosely put some additional points below to ponder):

What is the purpose – maximize, or optimize (diversify)? –
“Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.”
Source: 18 Wealth Lessons from The Psychology of Money by Morgan Housel | Sloww

Is the purpose to maximize return or you want to save on taxes (interest 30% and equity gains 10-15%). You want to diversify from bonds?

What is my direct equity exposure vs. my net-worth (if less than 20% don’t bother?, 20-50% – what else I have Index funds? Or real estate?, above 50% what is the purpose?).

Is the investor new? (how many cycles an investor has gone through – investor who has seen only one cycle is new, if seen two cycles – then intermediate and if seen 3 cycles then experienced)

Do I understand business language? (accounting and financial statement analysis)

Do I understand business? (key drivers of the business)

If investor is intermediate or experienced did he/she make at least 15% annually over the last decade?

Am I allowing myself to make mistakes to learn and grow or am I too defensive?

Am I able to call up or meet management?

Am i managing other people’s money?

Please feel free to add if I missed any. Thanks for opportunity on such an engaging topic.