As a result of the Greece debt crisis, stocks crashed today. The accounts are down roughly 3% to 4% and it’s only noon in the Midwest.
We went back for another round, purchasing more shares of Berkshire Hathaway this morning for the reserve portfolio, which comes on the heels of our acquisition last Friday. I’m going to be genuinely surprised if 10 to 15 years from now, when/if Buffett is gone (God willing, that won’t happen for a long time), the company hasn’t gone into full maturity mode and begun distributing substantial cash dividends. In other words, I expect the money we are allocating to Berkshire today to end up being a big cash income dividend producer in my 40’s.
The reason is fairly simple: Berkshire generates $9 to $10 billion in net cash per year, even after its reinvestment needs. Now, Burlington Northern Santa Fe is going to provide a home for some of that money, but let’s say cash flow grows at a 10% steady rate for the next 20 years. The company will then be generating $60 billion to $70 billion in annual net cash. There aren’t enough businesses in the world to absorb that kind of earnings power unless you want to park it all in Treasury bills, which isn’t going to happen. Berkshire could either devote itself completely to stock repurchases (which would be fine) or cash dividends.
As a general rule, when we buy Berkshire Hathaway shares, we tend not to sell them unless there is something that is really attractive in the actively managed portfolio and we need more cash. It will be fun to see how much we’ve acquired decades from now. I rather like the idea of huge dividend checks providing me a stream of earnings for redeployment coming from the conglomerate I admired as a child.
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