The question of whether Warren Buffett’s legendary Berkshire Hathaway (NYSE: BRK.A) is in need of a change in direction is a hard one to answer.

The latest earnings reports show that Berkshire is doing better than ever. Yet doubters are wondering if it is too rooted in the old economy to sustain that growth. The financial numbers, however, tell us that Buffett’s focus on industrials, insurance, old media and logistics seems to be working, at least for now.

Berkshire Hathaway’s (NYSE: BRK.B) revenue grew by $16.15 billion (€14.47 billion) over the course of 2015. Revenues rose from $194.67 billion (€174.37 billion) in December 2014 to $210.82 billion (€188.83 billion) a year later—a rate of growth that rivals that of Amazon (NASDAQ: AMZN) without losing money in the way that Jeff Bezos’ company has.

As usual, Berkshire posted some almost unbelievable numbers for fourth quarter 2015, including a diluted earnings per share figure of 14655.38, a net income of $24.08 billion (€21.57 billion), a profit margin of 10.57%, a return on equity of 9.78%, a free cash flow of $3.057 billion (€2.74 billion), $31.49 billion (€28.21 billion) in cash from operations and $71.73 billion (€64.25 billion) in cash and short-term investments. The numbers show us that Berkshire may not need a turnaround because it may already have.

Is Buffett’s Old Economy Focus Still Relevant?

The biggest criticism of Buffett is his focus on the old economy, which has led the sage of Omaha to forgo some great stocks, including Alphabet (NASDA: GOOG) and Apple (NASDAQ: AAPL). Warren avoided some of the tech industry losses, but he also missed the long-term growth in that sector and the dividends that stocks like Microsoft and Cisco Systems pay.

Buffett’s shunning of tech can be excused, but what about his massive investments in a questionable U.S. sector, namely, banking? Berkshire famously holds around $5 billion (€4.48 billion) worth of Bank of America (NYSE: BAC), a company that saw its revenues drop by $1.74 billion (€1.56 billion) in 2015.

We should note that Bank of America did post a 1.52% dividend yield and a 6.91% return on equity on March 10, 2016. That means Buffett did make $76 million (€68.07 million) off of dividends and $319.55 million (€286.22 million) off his investment, which makes the deal sound smart.

In his defense, Buffett also sold many of his shares in two big revenue losers in 2015, Walmart Stores Inc. (NYSE: WMT) and Goldman Sachs Group (NYSEL GS). Walmart’s revenue fell by $3.52 billion (€3.15 billion) between January 2014 and January 2015, dropping from $485.65 billion (€434.99 billion) to $482.13 billion (€431.86 billion). Goldman Sach’s revenue dropped by $710 million (€635.91 million) between fourth quarter 2014 and fourth quarter 2015, falling from $34.33 billion (€30.75 billion) to $33.82 billion (€30.29 billion).

Buffett also famously sold off his ExxonMobil (NYSE: XOM) holdings in 2015, largely because he thinks oil prices are going to remain low for a long time. In lieu of ExxonMobil, Berkshire has taken a bigger stake in Phillips 66 (NYSE: PSX), the U.S. oil refiner, because Warren thinks there will be more demand for its services in the near future.

Why Berkshire Might Need a Turnaround

These moves indicate that Buffett anticipates some of the changes in the economy and is preparing for them. That shows us that Berkshire Hathaway is more than capable of adjusting with the economy and turning around. It just takes longer to adjust than some other companies.

The real dangers to Berkshire seem to be its large investments in U.S. infrastructure, particularly the Burlington Northern Santa Fe Railway and pipeline systems in the United States. U.S. railroads are heavily dependent upon fossil fuels, particularly coal, which is in decline. Fortune reported that 200 coal-burning power plants have shut down in the past few years. It is not clear if U.S. railroads can find bulk materials shipments to replace coal.

A quick glance at Berkshire’s website also shows us that Buffett’s company is heavily exposed to the U.S. housing sector, which is on shaky ground. Its holdings include Home Services of America, a number of furniture companies, Acme Brick, a number of real estate brokerages and Clayton Homes.

Some observers, like housing analyst Marc Hanson, believe that U.S. real estate is in a bubble. Hanson told Fortune that he believes housing prices in the United States are 25% to 60% higher than what the nation’s economy can support. In the San Francisco Bay area, the average home price ($1.45 million or €1.3 million) is nearly 10 times higher than the average yearly household income ($180,000 or €161,225), Hanson pointed out.

If Hanson is correct, a U.S. housing crash similar to that of 2007 could be just around the corner. Such a bubble could damage Berkshire because Buffett has been famously betting on a U.S. housing turnaround.

To increase the risk, Berkshire is also heavily exposed to the old media in the form of newspapers. It owns one major U.S. metropolitan daily—The Buffalo News—and controls a large portfolio of newspapers through a subsidiary called BH Media Group. Buffett and his sidekick Charlie Munger have long contended that newspapers still hold value. This is a dubious proposition given the popularity of digital media.

One long-term danger that Berkshire faces in the U.S. is the dying off of older readers who are loyal newspaper subscribers. How does a newspaper stay in business if the vast majority of people in the community simply ignore its existence? Another is the continued migration of advertisers to cheaper and more flexible digital platforms.

The Real Turnaround Berkshire Hathaway Needs

It is obvious that Berkshire will need to trim its exposure to some of these sectors at some point in the near future, particularly if the revenues in housing or real estate fall too low to support Berkshire Hathaway’s business model. One has to wonder if Buffett or his successors can find new cash cows to replace some of those businesses.

The real turnaround that Berkshire Hathaway needs could be a new strategy and perhaps a new philosophy. That could only be provided by new leadership, probably after Buffett’s death. Only time will tell if Berkshire Hathaway will find a new CEO with the kind of vision and insight that the sage of Omaha has supplied so well for 50 years.


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