Key insights
- An analysis suggests Berkshire Hathaway's competitive advantage has diminished, particularly in investment portfolio management. While non-insurance earnings are growing, insurance earnings face headwinds. The author believes Berkshire is fairly valued but unlikely to outperform the S&P 500 over the next 5-10 years due to a weaker investment moat and slower non-insurance growth.
Morningstar went from wide moat to no moat on Berkshire a few years ago so I thought it deserved some reassessment.
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Non-insurance earnings before income taxes grew from $18,827.00 to $26,993.00 from 2015 to 2025 (~42%). This is by subtracting insurance earnings from total (2025 annual report on page K-107 and K-108 and do the same for 2015).
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Insurance earnings went from 6,387 to 24721 in 10 years. However, the ~15B investment income is mostly interest earned in T-bills; 9.5B earned in underwriting that their commentary says “ Overall underwriting results over the past three years were exceptional compared to results over longer periods. However, earnings may decline in the future from the ongoing impacts of competition within the industry and rising claim cost trends.”.
Greg Abel will certainly continues to run operations perfectly but doesn’t spend much time to look at stocks like Buffett and Munger together (his interview with Becky). He said the portfolio doesn’t need much time which is true but I think finding new investments does so I’m not optimistic on the portfolio long term and the deployment of the huge cash pile. The government is also trigger happy to support crashes so there’s less opportunity as we’ve seen during COVID vs 2008.
Summary: I think Berkshire is doing fine and trading near the intrinsic value now. Over the next 5-10 years, it probably won’t beat the SP500 given its eroded moat in their investment portfolio management and slow growth in non-insurance.