ClaimsWarren Buffett

“You should clearly understand, however, that these acquisitions will at best provide us only reasonable returns.”

Warren Buffett, Berkshire chairman 28 February 2001 Chairman's Letter (2000) (Berkshire Hathaway) archived copy

Prediction Their own work or organisation

Berkshire's negotiated acquisitions of entire businesses will at best provide only reasonable returns.

Unresolvable The public record could not settle it.

Prediction: Statements about events outside the person's control, checked once they fell due: did they come true?

Said for an organisation they lead or work for; it counts on both records.

What would count as true or false

Judge whole-business acquisitions Berkshire negotiated from 2001 to 2011. True: as a group these acquisitions earned ordinary or reasonable returns on the purchase price, with no exceptional returns, consistent with Berkshire's own later assessments. Mostly true: almost all were reasonable at best, with one modest exception. Mixed: a large share of them did clearly better than 'reasonable'. Mostly false: several major acquisitions earned outstanding returns on the purchase price. False: the acquisitions as a group earned clearly exceptional returns.

Set before the research began.

Evidence (12)

  1. E1 [PDF] 2010 Letter - BERKSHIRE HATHAWAY INC. Berkshire Hathaway Inc. Own record

    “Johns Manville, MiTek, Shaw and Acme Brick have maintained their competitive positions, but their profits are far below the levels of a few years ago. Combined, these operations earned $362 million pre-tax in 2010 compared to $1.3 billion in 2006, and their employment has fallen by about 9,400.”

  2. E2 Has the Oracle lost the Midas touch? InvestmentNews (Bloomberg News) · 18 June 2012

    “Pretax profit in 2011 at Berkshire's carpetmaker Shaw, insulation provider Johns Manville, Acme Brick and MiTek, a maker of building products, was $513 million compared with $1.8 billion in 2006 before the housing slump.”

  3. E3 [PDF] 2010 Letter - BERKSHIRE HATHAWAY INC. Berkshire Hathaway Inc. Own record

    “At Iscar, profits were up 159% in 2010, and we may well surpass pre-recession levels in 2011.”

  4. E4 Has the Oracle lost the Midas touch? InvestmentNews (Bloomberg News) · 18 June 2012

    “The 2010 acquisition of railroad Burlington Northern Santa Fe required Buffett to pay 31 percent more for each of the railroad's shares than the price before the deal was announced.”

  5. E5 Berkshire Hathaway 2010 Annual Report letter to shareholders Berkshire Hathaway Inc. Own record

    “The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected.”

  6. E6 Berkshire Hathaway 2010 Annual Report letter to shareholders Berkshire Hathaway Inc. Own record

    “It now appears that owning this railroad will increase Berkshire’s “normal” earning power by nearly 40% pre-tax and by well over 30% after-tax.”

  7. E7 Berkshire Hathaway 2010 Annual Report letter to shareholders Berkshire Hathaway Inc. Own record

    “Combined, these operations earned $362 million pre-tax in 2010 compared to $1.3 billion in 2006, and their employment has fallen by about 9,400.”

  8. E8 Every Acquisition Warren Buffett Ever Made at Berkshire Hathaway davemanuel.com

    “2005 | Forest River | ~$800M | 100% | Manufacturing | One of America's largest recreational vehicle manufacturers. Also makes cargo trailers, buses, and pontoon boats. Founder Pete Liegl pitched Buffett with a price and they shook hands a week later. Now generates ~$6 billion in annual revenue.”

  9. E9 Yestoday/Warren_Buffett/Berkshire_Hathaway_Letters/2011_Letter_to_Berkshire_Shareholders.md at main · pzponge/Yestoday GitHub (third-party repository copy of Berkshire's 2011 shareholder letter) Own record

    “The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million.”

  10. E10 Yestoday/Warren_Buffett/Berkshire_Hathaway_Letters/2011_Letter_to_Berkshire_Shareholders.md at main · pzponge/Yestoday GitHub (third-party repository copy of Berkshire's 2011 shareholder letter) Own record

    “In aggregate these businesses earned more than $9 billion pre-tax in 2011.”

  11. E11 Note: The following table appears in the ... - Berkshire Hathaway Berkshire Hathaway Inc. Own record

    “Together these businesses earned about $659 million pre-tax.”

  12. E12 [PDF] The 2009 letter - BERKSHIRE HATHAWAY INC. Berkshire Hathaway Inc. Own record

    “Then, on January 2, 1996, we acquired the remaining 50% of GEICO for $2.3 billion in cash, about 50 times the cost of our original purchase.”

Reasoning

The criteria require judging returns on the purchase price of the whole-business acquisitions Berkshire negotiated from 2001 to 2011, but none of the evidence pairs a purchase price with the earnings that followed. E1/E7 and E2 show that Shaw, Johns Manville, MiTek and Acme Brick earned far less in 2010–2011 than in 2006, and E3 shows Iscar's profits recovering, but none of these give a return on price. E5/E6 say BNSF was "working out even better than I expected" and E4 notes the 31% premium paid for it, but neither establishes whether the return was reasonable or exceptional. E8 gives revenue rather than returns, and E9/E10 give aggregate profits without prices, so the evidence does not settle the claim either way.

Cite this claim

Warren Buffett, “Berkshire's negotiated acquisitions of entire businesses will at best provide only reasonable returns.” (said 28 February 2001). Verdict: unresolvable. Reliability API, claim c_3d2b548b9951, method 0.1.0+28da144b, dataset release v1.1.2. https://epistacklabs.com/claims/c_3d2b548b9951

This claim is in dataset release v1.1.2, with the same verdict.

Reply to this claim

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More prediction claims by Warren Buffett

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  4. Mostly true Prediction 28 February 2002
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  5. Mostly true Prediction 28 February 2002
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All of them

Verdicts are made automatically; how verdicts are made.