Buffett’s Mistake – Again!
By Porter & Co. • Monday, June 1, 2026
The Fatal Conceit Of Conglomerates
By Porter Stansberry • June 1, 2026
INSIDE TODAY’S ISSUE
- ESSAY: BUFFETT’S MISTAKE – AGAIN
- AI CONTINUES TO BOLSTER THE MARKET
- HYPERSCALERS GO GLOBAL ON DEBT
- WARSH’S NEW INFLATION MEASURE
- CHART OF THE DAY… VIRGIN GALACTIC (SPCE)
- TODAY’S MAILBAG
If there is a single “gift” I would provide to every Porter & Co subscriber, it is the ready ability to distinguish between an average business and a great business.
Great businesses, like truly beautiful women, are rare. And for investors seeking to build real, lasting wealth, finding them is everything. With a great business, time is in your favor. With a great business, every recession is only an opportunity to gain share. With a great business, you don’t ever worry about competitors – they simply come and go.
I’ve written an entire book showing you exactly how to identify a great business. It’s called Warren’s Mistakes, and it walks readers through how Warren Buffett beat the S&P 500 by 11% per year for 30 years. He did it with a portfolio of America’s greatest businesses: Coke, American Express, The Washington Post Company, Gillette, McDonald’s, Disney, and Moody’s.
Of course, the best way to learn anything, as Berkshire Hathaway (BRK) vice chair Charlie Munger explained constantly, is to invert. That’s why my book doesn’t merely explain Buffett’s success, it focuses on his mistakes.
While I must admit it is unlikely that I will ever get you to read my book, I hope I can at least show you some of the lessons in it by looking carefully at the deal Berkshire announced today, the purchase of Taylor Morrison Home (TMHC).
Taylor Morrison is America’s sixth-largest homebuilder. Berkshire is paying $72.50 per share in cash — a 24% premium to where the stock closed Friday. That equals an enterprise value of $8.5 billion. And it values the business, on an enterprise basis, at roughly 10.7x 2025’s $791 million in net income. In the press release, Berkshire’s new CEO, Greg Abel, called Taylor Morrison “a best-in-class national homebuilder.”
Unfortunately, for Berkshire shareholders, it’s not. It isn’t even close. And I’d bet long-time readers of my work know what Berkshire should have bought instead.
In November 2007, in the depths of the housing collapse, I explained to investors why there’s only one homebuilder in America worth owning – NVR (NVR). Not because the others weren’t cheap – they were all cheap, down more than 50% from their highs. But because only one of them is a genuinely great business. I called NVR “not only the best company in the homebuilder sector” but “one of the truly exceptional businesses in the world.”
NVR went bankrupt in the early 1990s. It owned too much land and thus had too much debt to survive the 1990-91 recession. The experience turned its managers into fanatics about capital discipline.
Necessity is the mother of invention. As the company emerged from bankruptcy, it didn’t have enough capital to buy huge swaths of land. So it had to partner with developers. In the process, it invented the “land-lite” housing model. NVR doesn’t own raw land. It pays small, non-refundable deposits to option finished lots from third-party developers. It only takes title when someone is ready to buy a house. If a market sours, NVR walks away and forfeits the deposit. It never gets stuck holding billions in depreciating dirt.
The result, as I wrote in 2007, was “the highest returns on assets in the sector” and a balance sheet that was “nearly debt-free.”Those facts are still true today. NVR was trading around $400 a share when I recommended it in 2007. It trades above $6,000 today – despite a big recent drawdown as the housing market has suffered over the last two years.
It isn’t hard to compare NVR to Taylor Morrison, although doing so feels like picking on a retarded kid. In 2025, NVR earned a 44% return on invested capital (“ROIC”) and a 33% return on equity (“ROE”). Taylor Morrison earned 11% ROIC and 13% ROE. Over the full decade from 2016 through 2025, NVR’s ROIC averaged roughly 50%. Taylor Morrison’s averaged about 9%.
NVR earns 50 cents of operating profit for every dollar of capital employed. Taylor Morrison can’t crack a double-digit return on capital. So… why would anyone ever want to own that business?
Keep in mind, they build houses in the same country, at similar prices, to similar customers, at nearly identical gross margins – around 23% last year. The difference is not what they sell. It’s how much capital they have to bury in the ground to sell it.
You can see exactly where the capital goes. Taylor Morrison ended last year with $6.5 billion of inventory – land and houses – on its balance sheet. NVR, while generating more revenue, carried $1.7 billion of inventory. NVR turns its inventory more than 4x a year; Taylor Morrison turns it less than once. NVR converts a sale to cash in about 71 days. Taylor Morrison takes 376 days – its money sits trapped in dirt for more than a year before it comes back.
And the balance sheets tell the rest of the story. NVR ended 2025 with $1.9 billion in cash and negative net debt. NVR maintains a net cash position. Taylor Morrison carries net debt of more than 1x earnings before interest, taxes, depreciation, and amortization (“EBITDA”). One company is built to survive the next downturn and buy when everyone else is forced to sell. The other will spend the next bust the way the bad builders spent the last one: negotiating with its bankers.
But that’s not the real advantage.
What you’ll learn when you read Warren’s Mistakes is the enormous advantage capital efficient businesses have over time. You see, because NVR uses so little capital, it can return almost all of it. The company shovels mountains of cash into buybacks – $1.8 billion of stock repurchased in 2025 alone. Over the last decade, NVR shrank its share count 25% and drove earnings per share 4x – from about $104 to $437.
That is a compounding machine. And it is going to continue compounding, whether this housing slump lasts another year or another decade.
Taylor Morrison buys stock too: shares of other marginal builders, most recently William Lyon Homes and AV Homes. How’s that working out? It’s a bigger pile of capital that is generating meager 9% returns. That is not value creation. That is empire-building, which is exactly what Greg Abel is doing at Berkshire.
Ironically, this isn’t the first time Berkshire has made this mistake.
In 2003, Berkshire paid $1.7 billion to take Clayton Homes private. And, just like today, what Berkshire got was a capital-hungry, marginal business. Clayton is a manufactured-housing company bolted to a high-interest lender. How does it make money? It sells trailer homes to poor people. The homes depreciate faster than the loans amortize. Sure, poor people need somewhere to live, but this is a very tough business because, quite simply, its product doesn’t create any value for the people who buy it. It’s clearly a business that Berkshire shouldn’t have ever bought.
And it didn’t just buy Clayton – it has invested heavily in growing it. It built Clayton’s mortgage portfolio from $5.4 billion in 2003 to more than $13 billion today. It bought up the plants, stores, and loan books of failed competitors, too. The real capital employed by Berkshire into Clayton today isn’t $1.7 billion – it’s more like $13 billion to $15 billion.
These enormous, ongoing capital investments are what Berkshire’s conglomerate model is designed to hide. Let me explain.
Measured against the original $1.7 billion check, Clayton looks like a triumph: its roughly $1.9 billion of pre-tax earnings in 2024 is more than the entire purchase price! But once you count all the capital Berkshire has sunk into Clayton – the loan book, the factories, the competitors it bought – the return on capital employed collapses to roughly 12% to 14% pre-tax, or about 9% to 11% after tax. That is a mediocre, single-digit-to-low-double-digit business. It is, in other words, the same 9% return as Taylor Morrison.
But what if Berkshire had just bought the best business in the industry, NVR, and never invested another penny?
NVR earns a 44% ROIC – roughly 3x to 4x the return Clayton Homes generates on capital. Had Berkshire taken the same $1.7 billion it spent on Clayton equity in 2003 and simply bought NVR, that stake would be worth about $22 billion today – a 13-fold gain – without another dollar invested, because NVR funds itself and hands its cash back (via share buybacks).
Run those same returns with the full $13 billion to $15 billion Berkshire has tied up in Clayton, and the delta becomes obscene. The realistic, conservative cost of choosing Clayton over NVR is somewhere north of $50 billion in forgone value. Berkshire didn’t just pick the wrong horse. It spent two decades shoveling feed into it.
Now with the Taylor Morrison deal, Abel says Berkshire intends to “unify our site-built homebuilding operations into a combined platform.” In other words: take the bad manufactured-housing bet, staple a capital-heavy, single-digit-return site-built homebuilder to it, and call the combination “strategy.” This is the entire conglomerate fantasy expressed in a single deal. And it won’t work.
What Berkshire should do is spin off or sell Clayton Homes and invest the capital into America’s best homebuilder, a company that creates tremendous value for its customers and its shareholders. That’s NVR.
Here is the part that should make every Berkshire shareholder wince.
Berkshire’s entire genius – the thing that made it the greatest compounding story in the history of American capitalism – was using insurance float to buy wonderful businesses. Float is other people’s money: premiums collected today against claims paid years from now. It costs almost nothing, and it grows. Buffett’s insight was that you could take that nearly free capital and invest it in the best businesses in the world – Coca-Cola, American Express, GEICO, See’s Candies – capital-light compounders that throw off cash.
A naive investor will look at Taylor Morrison trading below book value and call it a bargain. But the book value is the disease, not the cure. You are paying 90 cents on the dollar for $6.5 billion of slow-turning land that earns 9%. Buffett, of all people, taught us that price-to-book is meaningless once a business stops needing the capital.
Strip away the names, and the deal is depressingly familiar. Berkshire passes on the wonderful, capital-light, publicly traded compounder. It pays a premium for the capital-hungry, low-return business. It takes the bad business private, where its poor economics can hide. And it calls the whole thing a long-term commitment to housing.
It is the railroad and the utilities all over again.
Read my book. And don’t buy Berkshire Hathaway.
Tell me what you think of today’s Journal: porterstansberrydirect@gmail.com
Good investing,
F. Porter Stansberry
Stevenson, Maryland
P.S. Porter & Co. analysts are aligned on one common thesis… That in one way or another we are due for a major financial reset. Porter invited each of them to discuss the melt-up and eventual meltdown – and the video discussion they recorded last month offering all the details is coming down at midnight. Click here to watch it now and learn what Porter, Tech Frontiers editor Erez Kalir, and Distressed Investing’s Marty Fridson have to say… and hear what analyst Justin Brill thinks about a new publication he is spearheading to help investors weather the storm.
Presented By: Paradigm Press
Oil Prices Could Send These Three Stocks Soaring
If the turmoil in the Middle East has you rushing to buy oil stocks right now – STOP and read this.
The biggest gains from the last oil crisis didn’t come from oil companies.
The top-performing energy stocks were tiny. Practically unknown. And every major oil company in America was completely dependent on them.
Today, it’s the exact scenario— except the scale is roughly 13,000 times larger.
That’s why I just vetted three of these companies in this exact same position.
But this time it’s not just oil that’s driving them higher…
Trump’s latest initiative could lead this sector to a major surge.
Editor’s Note: Keep in mind, we only accept advertising from publishers we know to offer well-researched ideas vetted by a legal team, excellent customer service, and reasonable refund policies. Paradigm Press is one such partner. We do not, however, under any circumstances make any representations about their investment ideas or strategies, nor will we warrant them as equal to our own. We do recognize that the markets are tempestuous and, at times, ideas that we may not endorse prove valuable.
Things To Know Before We Go
1. Artificial Intelligence (“AI”) stocks fuel the bull market. Goldman Sachs has created two market indexes that split the S&P 500 into a basket of AI-related and non-AI-related stocks. Since February 27, the day before the market correction sparked by the Iran War, the basket of AI stocks has provided all of the gains while non-AI stocks have generated a negative return – a theme we’ve seen for the past three years.
2. AI is taking over the world’s bond markets. AI hyperscalers – including Alphabet (GOOG), Amazon (AMZN), Meta Platforms (META), and Microsoft (MSFT) – have doubled non-dollar debt issuance to 30% of their total bond funding this year, according to Bank of America. Alphabet, in particular, is now the fourth-largest pound-sterling corporate borrower and a top-10 issuer in euros, yen, and Swiss francs – setting borrowing records across all four currencies to fund the trillions it plans to spend on AI data centers. Every major bond market on Earth is now long the AI trade.
3. New Fed chair wants a new inflation ruler. Federal Reserve Chair Kevin Warsh is looking to trim the parts of the inflation metric with the most extreme monthly price moves. To do so, he points to the Dallas Fed’s personal consumption expenditures (“PCE”) formula that measured inflation at 2.3% in April, a full point under the 3.3% core PCE, dumping the energy shock the Iran war is causing. The economists who built the PCE measure are warning Warsh off from doing this, noting it will badly understate persistent inflation.
Chart Of The Day… Virgin Galactic Holdings (SPCE)
Shares of cash-burning space-tourism firm Virgin Galactic (SPCE) have nearly tripled in the past week, reportedly on speculation that investors may mistakenly buy the stock thinking it’s Elon Musk’s SpaceX, which is set to trade under the ticker SPCX following its widely anticipated initial public offering (“IPO”) later this month.
Mailbag
In Friday’s Daily Journal Justin Brill wrote about how the crypto space has been changing in the last few years, gaining wider adoptrion by key financial institutions. Readers share their thoughs…
Justin and Porter:
Thanks for this and you are so right. Hang on for the ride.
This is going to be bigger than TPL.
Readers have continued to write in about Porter’s new, now best-selling book, which he published last month. 2029: The End of America is available on Amazon.
“Europe Versus America” — Lee B. Writes:
2029: The End of America, like all of your work, is thoroughly researched, well documented, cogently argued, and interesting to read. Any thoughts on how subscribers in Europe might be affected differently, if at all? Do you think the Euro will fare any better than the dollar? Thanks
“Cantillion Geography” — Bill W. Writes:
Hey Porter
You said, ‘Tell me what you think of today’s Journal… good, bad, or anything inbetween.’
Okay: You nailed it.
Here’s my proofs:
#1. In 1969, the local Safeway grocery store offered me a bagging job right out of high school, a union job! I declined because I was going to be out of the country for two years and wanted to have some fun first. I returned in 1972 and wanted to get married. So I went back to Safeway to grab that bagging job: “Sorry, we don’t have any openings right now.” I couldn’t get that same job, or any other, because Nixon killed the dollar whilst I was overseas, and jobs dried up. By the time I got gainfully employed, my fiancé dropped me! Her dad said, “The bum doesn’t have a job. And I’ll pay for your out-of-state college tuition!” I don’t blame her – marry a guy with no job? Don’t blame her one bit. I felt like a bum, too, because I was a hard worker and could not find work. So I painted houses to get through college.
#2. In 1975, I bought a house in Los Angeles for $48,500. Four years later, I sold it for $149,000 and moved out of state.
#3. We moved two more times between 1980 and 1993, each time, making money (correction, “harvesting inflation”).
#4. In 1993, we bought a house in Alexandria, Virginia, for $174,000. We sold it in 2014 for $525,000. Note that we lived in your Washington, D.C., Cantillon area for 28 years. We both worked for a couple of members of Congress, then moved on to the lobbying shops where I was a policy analyst and Karen was a speechwriter for a) the Republican National Committee, b) President Bush, and c) two industries: insurance and manufacturers of wooden pallets and containers. We were in that lower-middle rung of the advocacy industry – not among the ones making millions.
Summary: I’ve lived through much of what your article talks about, and lived inside the Cantillion geography. You nailed it.
Porter & Co. Market Snapshot
PriceFriday’s ReturnYear-to-Date ReturnS&P 500 Index$7,580.060.22%11.2%Gold per ounce$4,560.500.99%3.5%Bitcoin$73,372.52-0.32%-19%Oil (West Texas Intermediate) per barrel$87.36-1.34%63%Berkshire Hathaway (BRK)$710,900.00-0.67%-5.8%Porter’s Permanent Portfolio–0.21%-1.6%The Better Than Berkshire Index–0.86%2.1%YieldFriday’s ChangeChange
Year-to-DateU.S Treasury 30-Year Yield4.97%0 bps13 bpsPrices as of 4:00 pm ET May 29, 2026 | bps = basis points (or 0.01%)*A Complete Investor risk rating of 1 is defined as a “low risk, high allocation” security, while positions rated closer to a 5 are higher risk. Porter & Co.’s top-ranked positions include those rated either 1 or 2 in Complete Investor portfolio.
Porter & Co. Top Positions
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RJ Hamster 