May 10, 2017

Berkshire growth prospects diminished

Doug Kass is skeptical of Warren Buffett's Berkshire Hathaway and its growth prospects. He states that many of Buffett's investments include "Old Economy" companies such as Coca Cola, IBM, American Express, Walmart and they face numerous headwinds. He was able to buy such companies "on the cheap" due to controversies. But now Buffett is purchasing companies that are mature and selling for much higher valuations.

In 2015 Buffett purchased Van Tuyl Group, a car dealership. Car dealerships depend on their Service and Maintenance department as a key revenue source. But with "car sharing" getting more popular, this could be a risk. 

Doug Kass writes, "To me, the Van Tuyl and Burlington purchases potentially represent a continuation of an unsuccessful "old-economy" strategy that's failed Berkshire since 2009."

Due to these risks and slow growth, Kass does not believe there is much of a margin of safety in Berkshire Hathaway's share prices.