Stansberry Research: Berkshire Hathaway is in Decline

A recent article published by Stansberry Research cites a number of troubling statistics that suggest Berkshire Hathaway may be in a downward spiral. According to Stansberry Research, Berkshire Hathaway has a unique business model that guarantees billions of dollars in capital each year from insurance subsidiaries. This sets them apart from the S&P 500 companies that must first grow capital in order to invest it. Berkshire Hathaway invests the capital collected by insurance subsidiaries through premium payments. So long as the company’s profits exceed the amount that the insurance companies pay in claims, they continue to be a profitable business model.

Unfortunately, Warren Buffett, the CEO of the company, has mostly stopped investing in the mid-sized companies with bright futures that earned him billions earlier in his career. Instead, Mr. Buffett now invests heavily in highly regulated industries such as energy to give the appearance of growth within the company. However, when balancing the minimal profits from those investments against the claims paid out by the insurance companies that fund the investments, the numbers simply don’t add up to a healthy company with a profit margin. Potential investors are so star struck by the idea of working with Warren Buffett–America’s sweetheart of investors–that they don’t look closely enough at the company’s current investment scheme. Instead, they operate under the assumption that any investment promoted by Warren Buffett must be a solid one (http://stansberryresearch.com/products/stansberry-alpha/).

In reality, Berkshire Hathaway is in decline. After decades of topping the S&P 500 companies, those same companies are beginning to outpace Berkshire Hathaway in profits. The company is now badly mismanaged—a fact that they continue to hide from their investors.

If Stansberry Research is correct, then this may be the beginning of the end for Berkshire Hathaway. Anyone investing in the company stands to lose big if they are relying too heavily on the fact that they are investing with Warren Buffett. Perhaps this should be a warning to anyone looking to invest: invest in the company, not the name recognition of the person running it.

 

Categories: Statistics
Apr
4