Berkshire Hathaway has, again, reported a big jump in quarterly profits. What is it that keeps the company performing year after year, and keeps investors coming back time and again? In this interview, SIM Global head Kokkie Kooyman talks about Berkshire’s ability to pick winners, and about the deep ethical commitment that has won investors’ trust over the years. It’s interesting that Kooyman identifies Berkshire management’s ethical standards as a driver of their popularity with investors. Sometimes ethics are overlooked in business, with its relentless focus on the bottom line, and it’s nice to hear that a commitment to ethics plays a role in Berkshire’s success. – FD
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ALEC HOGG: Berkshire Hathaway posted a 29 percent jump in third-quarter profit as it recorded big gains on investments made during the financial crisis. However, operating results missed forecasts amid weakness in insurance operations. Someone who knows Berkshire Hathaway as well as anyone in South Africa is Kokkie Kooyman, head of SIM Global. I guess the other big thing to come out of this Kokkie, is youâre sitting on 40 billion USD, ready to spend.
KOKKIE KOOYMAN: Yes, in fact, itâs a bit more at 42.1 billion and he keeps generating more, but youâre right. I think it was a very good result and much of it was driven by the Railroad and Power production businesses â Burlington and Mid-American. Then also, the investment income where he generated the earnings from the conversion of warranties bought in 2008 in Goldman Sacks as well as GE. Yes, the insurance results were  disappointingâŚnothing to do with him. Itâs severe hailstorms in Europe and as Buffet says, when youâre in a big insurance business especially property and casualty, youâll have good years and youâll have bad years. The trick is to make sure it gets you on a ten or 20-year cycle, that you price, when you write your insurance premiums, sufficiently high to make up for possible losses and then you make up on investment income. Just as a last point, the investment income wasnât shabby at all. It was about 760-odd million â better than last year â so I think it was actually quite a good result.
ALEC HOGG: The 600 000 shareholders in Berkshire Hathaway: quite a few of them are South Africans, Kokkie. Whatâs the appeal? Why do South Africans like this company so much?
KOKKIE KOOYMAN: Alec, I think itâs just you and me taking all these South African investors across to Omaha. I think what attracts, regarding Berkshire Hathaway is firstly â itâs a very safe company. You know management. Their ethics are totally above-board. Heâs very transparent in what he does and it gives you a very good exposure to America. It used to be very much insurance-driven, but heâs been building up the consumer exposure. Remember, the consumer in the US â up until this year â has had a hard time, so I think with the consumer coming back in the US those business will do well. Then generally, heâs been deploying the cash in good businesses that will just consistently give you a return. I do think South Africans – when I travel the world one thing that we still have is we have a much better investment culture than most other countries. If you look at the lengths or the period that South Africans hold stocks in terms of just our insurance industry, our mutual fund industry, and I suppose from that point of view Berkshire Hathaway attracts many investors.
ALEC HOGG: Colin Coleman wouldnât tell us his thoughts on it because heâs intimately involved with Goldman Sacks, but the Abil rights issueâŚÂ Kokkie, you know this business well. It does appear to be guaranteed to succeed and once certainly wonders why itâs sitting at the price that theyâve put it at. One wonders why you need Goldman Sacks to underwrite it in the first place.
KOKKIE KOOYMAN: Yes, itâs one of those. I suppose, as with any business when youâre going to do a rights issue, your risk is the so-called âfat tail eventâ. Letâs say the rand suddenly falls 30 percent or thereâs some unexpected event and you canât get your rights issue placed â so you always do need the safety of an underwriter. However, you are right. At the price at which these rights are being placed, you almost donât need an underwriter.
ALEC HOGG:Â I suppose itâs also telling us that Abil desperately needs the money to survive.
KOKKIE KOOYMAN:Once again, I havenât spoken to Leon or anybody on the team there, but the amount of emotional negativity toward African Bank after the disappointments, you almost need to make sure that your price is so low that it is so attractive that even the most emotionally-negative still say âI canât let this goâ. Itâs a big rights issue. Make no mistake. They do need quite a lot of capital, so it actually has to be attractive.
ALEC HOGG: Itâs a bit like the Nedbank rights issue, when they got into trouble some years agoâŚ
KOKKIE KOOYMAN: Youâre quite correct. At that stage, you canât afford to play games and price it finely, so I think itâs actually priced quite attractively. You can actually see how initially, when it was announced the share price fluctuated a bit, but itâs been settling around this price because investors obviously do the calculation of âwhat is my average price now in terms of following my rights?â You can see that in that regard, investors are really calculating âwhereâs a rightful price?â and we will be close to take up price, so I think the Rights Issue shouldnât be a problem.
ALEC HOGG:Â Our thanks to Kokkie Kooyman – heâs head of SIM Global.
