It’s not hard to imagine why so many people want to channel Warren Buffett and his legendary firm Berkshire Hathaway (NYSE:BRK-B | BRK-B Price Prediction), which has trounced markets since its inception. Undoubtedly, some doubts arose when Berkshire struggled to top the S&P 500 by a meaningful margin in recent years. In recent quarters, Buffett and Berkshire have been raising considerable sums of cash as the bull run took off, catapulting the valuations of many stocks well above their historical averages.
With the S&P 500 now in a correction while Berkshire shares have gone relatively unscathed, down just over 1% from its all-time highs, it’s clear that the Oracle of Omaha still has it. And as investors rush to safety into names like Berkshire, which is locked and loaded with a huge cash position to take advantage of market pullbacks, it’s become clear that perhaps Berkshire’s market-beating potential lies in the ability to really outperform in a market that may just be flying south for the summer.
Berkshire Hathaway looks to be right — again.
At the time of writing, the S&P 500 and Nasdaq 100 both down double-digit percentage points while Berkshire is a hair shy of new highs. Meanwhile, Buffett and the company are bound to gain a lot more fans as BRK.B shares stay resilient amid this incredibly challenging moment for markets and the economy. Some of the fans aren’t just investors, but other firms who may aspire to become more like Berkshire.
I guess you could say that the structure and management of Berkshire Hathaway are the things of legend. Whether we’re talking about its unique, trust-based decentralization of subsidiaries or the wise investment decisions made by Buffett and company, it’s my humble opinion that a lot of firms could do a heck of a lot better by adopting more of a Berkshire-like model for their organizations.
Bill Ackman, billionaire hedge fund manager over at Pershing Square Capital, is a vocal fan of Buffett’s and he recently expressed interest in transforming his firm into what he referred to as a “modern-day Berkshire Hathaway.” Indeed, such a statement is very exciting, and while I am a fan of the concept, it won’t be all too easy to pull off.
Buying Howard Hughes Holdings would be a step in the right direction.
Still, such a difficult feat is more than worth pursuing as Ackman aims to hike its stake in Howard Hughes Holdings (NYSE:HHH) significantly. Indeed, Howard Hughes is a fantastic business that’s cheap and rich with free cash flow. And while a bigger stake or full ownership could help make Pershing Square more Berkshire-like, there will be notable differences.
Indeed, Howard Hughes Holdings is a real estate firm rather than an insurance juggernaut rich with float. That said, Howard Hughes is a very well-run real estate firm focused on master-planned developments, which may lead to greater long-term value creation for residents and investors once the firm’s long-term-focused master plans really begin to pay off. It is an exciting prospect to think about the growing cash flow stream that’ll be used to make smart, timely long-term bets under Ackman.
With Pershing Square recently extending its stand-still agreement, questions linger as to whether a deal can be inked. Either way, if Pershing Square can pull it off, it will be an incredibly pivotal moment for the firm as it reinvents itself as modern-day Berkshire.
Expect more firms to make moves to become more like Berkshire
Indeed, Ackman isn’t the only one that wants to be more Berkshire-like. Brookfield Asset Management (NYSE:BAM) CEO Bruce Flatt sounds like he also wants to take a page out of the Berkshire playbook, by being open to putting insurance at the top.
In any case, there’s no denying that Berkshire still has it many decades later. As the stock market continues to sag, I’d look for Berkshire to keep standing tall, thanks to its mountain of cash and time-tested managerial style.
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