Why Doug Kass is Short Berkshire Hathaway

In 2013, at the annual shareholder meeting for Berkshire Hathaway, also known as “The Woodstock of Capitalism,” thousands and thousands of people gathered in Omaha, Nebraska in order to show their affection and devotion for Warren Buffett and his company Berkshire Hathaway.

But there was one guest that came to bury the Oracle of Omaha instead of praise him – at least in a rhetorical sense. Doug Kass, famous short seller and managing partner of Seabreeze Partners, was on hand and invited by Warren Buffett in order to play the role of the “credentialed bear” in an effort to dissuade the crowd from owning the Berkshire Hathaway stock. Kass describes this as a “professional highlight” in his latest book “Doug Kass on the Market: A Life on The Street.”

“I was kind of Daniel in the lion’s den,” explains Kass. “With 55,000 of [Buffett’s] devotees… trying to stump him with original hard-hitting questions. But at the same time I wanted to be respectful because I worship at his investment altar.”

It’s not very likely that Kass convinced any of the members of the audience to sell their Berkshire Hathaway shares. “Doug, you haven’t convinced me to sell the stock, but keep trying!,” joked Buffett at one point.

Regardless, Kass noted that Berkshire Hathaway stock was “dead in the water and underperforming both absolutely and relative to the market” for a number of months after the annual meeting in 2013. Berkshire Hathaway shares have actually rebounded since then and have even outperformed the S&P 500 in the 18 months since the event took place.

Kass was short Berkshire Hathaway stock at the time and still remains to be short today, and notes that he has even added to the position recently.

“Recent earnings reports at Coca-Cola and IBM, two large Berkshire Hathaway investments totaling almost $30 billion, suggest that the companies’ moats appear to be vanishing.”

Warren Buffett is known for hunting gazelles in the past – stocks that are undervalued – now he hunts elephants, which are businesses that are fairly valued or overvalued. Many of the recent purchases could be excellent additions to the portfolio of companies at Berkshire Hathaway, although, the overall high prices being paid for these investments could certainly end up with a lower return on invested capital.

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