In many circles of the financial industry, Berkshire Hathaway and its CEO, Warren Buffet, represent a level of performance that is above critique. Building on a tradition of success that has spanned decades, the company’s achievements seem only fit for praise. But in a recent article to its readership, Stansberry Research, the financial advice publisher, has gone against popular opinion to single out some ways in which it considers the company to be in a current state of disrepair. The piece, penned by the publisher’s founder, Porter Stansberry, is a thought-provoking example of contrarian opinion for which he has become known.
History of Independent Thought
Founded in 1999, Stansberry Research was created by Stansberry at his kitchen table on nothing more than a borrowed computer. From these humble beginnings, the publisher of financial advice has grown precipitously over the almost twenty years of its existence. Right now, the various newsletters and publications put out by the publisher boast over 500,000 total subscribers and over 70,000-lifetime subscribers (GlassDoor).
One of the main contributors to the publisher’s reputation is the reputation of Stansberry himself. Having the distinction of being the first American editor of the Fleet Street Letter, the world’s first English-language financial newsletter, the financial analyst has a long history of presenting readers with forward-thinking financial evaluations. One striking example of his ability to accurately predict financial markets was his advance warning of the impending credit crisis. This prediction stood out so starkly from the wisdom of the time that it caused Barron’s to comment that it was “Remarkably prescient… Nothing, as far as we can see, has happened to contradict his dire prophecy…”
Berkshire Hathaway’s Strategy
In his recent letter to his readership, Stansberry turned his focus to Warren Buffet’s brainchild, Berkshire Hathaway. In his examination of the company, he first touched on their history and how they built the immense wealth that established them as the premier player in financial markets. According to the letter, this wealth was built on the back of capital floats from P&C insurance acquisitions. The deal Buffet had worked out was that Berkshire Hathaway would handle insurance underwriting responsibilities, and in return would receive access to a massive amount of capital, essentially for free. Currently, the capital amassed from those insurance floats totals $114 billion.
With that large amount of capital, Buffet was able to make a series investment in fundamentally strong companies that allowed Berkshire Hathaway to consistently beat index funds that tracked the market at large. In his recent letter, Stansberry quoted Buffet to illustrate his past approach to investing. “Companies such as Coca-Cola and Gillette might well be labeled ‘The Inevitables.’ Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years,” said Buffet. “In the end, however, no sensible observer – not even these companies’ most vigorous competitors, assuming they are assessing the matter honestly – questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime.”
Berkshire Hathaway’s top-down approach to investing stands in contrast to the distributed approach that Stansberry Research takes in dispensing financial advice. A point of pride for the publisher is its focus on rooting its analysis in a diverse range of opinions. In addition to its founder, the publisher’s team is made up of more than twenty editors and analysts. This wide-ranging group of voices with a myriad of newsletters, bulletins, and advisories sent out regularly to readers forms the foundation for the publisher’s advice. By allowing for this spectrum of ideas, Stansberry Research strives to give its subscriber base a greater breadth and a more diverse range of investment opportunities.
In addition to offering a range of opinions, the editors at Stansberry Research seek to provide their readers with opinions of a quality so high that they would feel comfortable giving the advice to people in their own lives. In fact, the two guiding principles of the publisher state precisely this, with one principle focusing on dispensing advice that they themselves would want, and the other focusing on dispensing advice they’d want their family members to follow.
Departure from the Norm
In accordance with these guiding precepts, Stansberry’s recent letter to readers, sought to go to the heart of what he anticipated would be an unpopular but important opinion. After outlining the aforementioned founding investment strategies of Berkshire Hathaway, he moved on to the ways in which the company has departed from their historical methods of achieving success toward strategies that he considers to be fundamentally unsound. The bulk of these new strategies have moved away from the consumer “Inevitables” that Buffet once found so appealing and have now been replaced with a myriad of entities in highly regulated industries such as transportation, banking, and energy (https://twitter.com/stansberry?lang=en).
One of the main problems with Berkshire Hathaway’s new pursuits, according to Stansberry, is the need to pour money into infrastructure and take a much more active role in the day to day activities of the entities in which they invest. This has resulted in returns that have failed to outperform the markets and have ultimately become a striking departure from the achievement one has come to expect from the financial giant. In summating his feelings about the problems at the company, Stansberry once again quoted Buffet himself. “Loss of focus is what most worries Charlie and me when we contemplate investing in businesses that in general look outstanding,” said Buffet. “All too often, we’ve seen value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander.”
Though Stansberry warns that his recent analysis of Berkshire Hathaway may be viewed as controversial by many, it is in line with the typically thoughtful perspectives one has come to expect from Stansberry Research. With a focus on provided quality financial advice that represents a breadth of opinions, analysis such as this recent letter is a crucial part of the publisher’s legacy for independent thinking. With a commitment to excellence that has spanned almost twenty years, the publisher of financial advice can rest assured that its predictions will continue to be well-regarded throughout the foreseeable future.