After reading all the positive comments about BRK in this thread I came across this article: https://www.nasdaq.com/articles/hypocrisy-berkshire-hathaway... For somebody with little knowledge of financial services (i.e., me), how would you recommend that I interpret this?
The BRK official position on Valeant is that they take advantage of sick individual's life-or-death need for drugs to price gouge them since purchasing decisions are not made on price (medication is "price inelastic").
Clayton homes is criticized for having bad or misleading loan terms. BRK (and many financial services individuals I know personally) often see just about any loan term as fair as long as no-one was forced into the loan at gunpoint. Is it the responsibility of the lessor or lessee to make sure the lessee is signing to something in their best interest? Loans are not life-or-death and purchasing decisions are frequently made on price (loans are "price elastic").
The article you've linked presents these two cases and makes the argument that they are equivalently immoral, making Munger a hypocrite. Personally, I think they're both fair criticisms, but they definitely come from different places. I don't see necessary cognitive dissonance in having the opinion that only one of these is immoral.
With regard to cutting costs: I see no indication that BRK criticized Valeant for firing people, so I suspect this is a personal issue for the author of the article, so I haven't addressed it here.
Criticisms on valeant don't seem fully justified. Sure valeant had questionable business practices in the past, but they've changed due to law enforcement. Plus, the other criticisms can be applied to almost every pharma company
1) berskhire owns clayton homes which takes advantage of poor people with high fees. Therefore it is hypocritical for Charlie to accuse a pharma company of taking advantage of people.
2) some of berskhire deals associated with 3G capital cost cut at sake of revenue growth
For number 1, it’s a fair question. I’ve heard of Clayton homes before and seems to be a head scratcher for Warren and Charlie who are quick to throw moral judgements around. However one key difference I’ll point out between Clayton and Charlie’s criticism of the pharma company is that jacking prices in pharmaceuticals can be literally a life or death matter. Clayton homes on the other hand people have choices - they can continue to rent a usual apartment vs trying to “buy” a home. Not saying it’s not sketchy but the degree of harm is different.
For number 2, the author leave out many specific details but I’m inclined to not give much weight. If you’ve read any of Warren’s letters their entire philosophy is to buy and hold, generating a healthy return on net tangible equity year after year. It makes no sense they would cut costs at expense of revenue growth. It does make sense they would cut costs, but not in the slash and burn manner this article is implying.
Berkshire’s job is finding stable, undervalued companies and buying them with the funds from massive insurance company floats (ie leverage).
The government’s job is to protect people from the negative side effects of the aforementioned activity.
Clayton homes is one party doing its job properly (Berkshire), and the other dropping the ball (the US government).
We cannot just hope and pray companies will follow our vague and differing ideas about what is right. If we want them to act a certain way, we have to write laws to make that happen.
I would say don’t try to interpret a single article to understand the whole of Berkshire Hathaway. It’s a complex organization with 300K employees in dozens of businesses who operate in a totally decentralized way (aside from capital allocation).
1) Mobile homes are horrible investments. They go rapidly down in value. “cars go down in value. Mobile homes go down in value. It’s a car you sleep in.”
2) Private equity groups such as the Carlyle Group, TPG and Blackstone now own large tracts of mobile home park and collect big fees.
3) Loans for the houses have large interest rates. They have to be. If you sell a product and give a loan that goes down in value very fast, only way to do that is to charge big interest because the risks are also big. Poor people don't have other collateral.
This kind of rent seeking form land and loans where poor people pay and pay means that people stay poor. This would be a job for government. Provide cheap rented land and basic infrastructure and cheap mobile housing.
It's not just mobile homes. All homes are horrible investments. It's just that mobile homes don't come with Real Property (in other words land), and Real Property goes up in value.
You will see people who do some renovations and kid themselves that this is an "investment" in their home - in practice the increase in market value of the home will typically be negligible, sometimes negative and only in some very unusual cases would it meet or exceed their costs in doing the work. This doesn't make renovating your house a bad idea, but you should have your eyes open that it's only an "investment" the way a nice meal or holiday trip is an "investment".
The reason Real Property (usually) goes up in value is that it's in some sense scarce. If I need fifty square metres of Manhattan Island, no amount of Ohio, whether fifty square metres or fifty square miles is a valid substitute.
The hmme can seem like it adds value because an equivalent amount of land nearby with no house on it is often worth much less - except if that equivalent amount of land comes with legal authority to put a house on it you'll find suddenly it is worth almost as much as the land with an actual house on it. That permission (where required) is very valuable, the timber and paint and so on not so much.
I beg to differ. Were I to sell my home at current market price I would not only have lived for free for the last decade, I would've been paid to live in it.
