Warren Buffett has made some pretty amazing investments over the years.
He’s famously held Coca-Cola stock for over three decades, turning an initial $1.3 billion stake into $25 billion today. American Express is another multi-decade investment, with similar returns.
His most recent investment in Apple, while not the best in percentage terms, is likely the best in absolute dollar amounts. His $35 billion investment has made over $100 billion dollars in profit. Wow.
The problem with being such an amazing investor is that with big gains come big taxes. (Nice problem to have of course!)
While most of us can invest in tax-deferred accounts like IRAs or 401ks, unfortunately, for companies there’s no real way to get around having to pay Uncle Sam.
Or is there?
Many investors have adopted the ETF structure over the past 25 years, and it’s becoming clear they are eating the asset management industry. Lower fees, absence of conflicts of interest, and tax efficiency are all big positives for ETFs vs. traditional mutual funds and hedge funds.
Many traditional asset managers have embraced ETFs, although some have been dragged kicking and screaming. However, lots of other use cases have developed. Although mutual fund conversions are commonplace today, we were one of the first to transition our separate accounts and hedge funds into the ETF structure. We’ve now also seen non-profit organizations, RIAs, sovereigns, and real money institutions get involved.
So what does this have to do with Buffett?
Warren and Charlie are sitting on a ton of capital gains, well over a hundred billion dollars. We chatted with Pabrai on the podcast about whether they are making a “Coca-Cola mistake” with Apple today. Meaning, is Berkshire reluctant to sell its huge holding at high valuations just to avoid taxes?
What if they could avoid them?
What if Berkshire launched an ETF?
Now, while the transition is much more complicated for a corporation than doing a simple separate account or mutual fund conversion, it is possible. Phrases like 351 exchange, heartbeat trades, and other tax jargon are too much for this article. Other issues, like the crew being older and just not wanting to deal with the headache or press or having to manage public assets, are reasonable too. But it’s at least doable.
You can read the great Cinthia Murphy dig into some of the issues here.
Warren, when you’re ready let me know and I’ll let you have the OMHA ticker…