BERKSHIRE HATHAWAY
http://discussion.fool.com/jim-do-you-have-any-historical-data-o…
http://discussion.fool.com/the-point-is-that-people-here-are-com…
and this view posted a few days ago 1/13/16 by mungofitch on the Mechanical Investing board
Most quants think Berkshire’s irrelevant. I won’t try to convince anybody.
But if you thought you ever might pick up some shares, I recommend right now.
Price is $126.80 per B share.
By my metrics, it has been cheaper than this only 1.7% of the last 20 years.
It could always get cheaper for a while, but I think the risk/reward ratio is unusually good.
Berkshire Hathaway (Warren Buffets company) is rather broadly diversified among mostly lowish tech SP500 companies. Picked by one of the smartest investors ever. He is old the stock may go down when he dies but I think much of his methodology is teachable to those that follow him.
Berkshire has so many interests that in a way it is close to an index. So I think a certain part of your portfolio devoted to index based ETF (like SPY ) could replaced by Berkshire.
There are 2 classes of Berkshire stock
http://www.investopedia.com/ask/answers/021615/what-differen…
for obvious reasons I prefer BRK.B
BRK is diversified by industry group too. But like all equities it’s price will be depressed ion a bear market even if the company is OK Since it is diversified earnings will drop temporarily in a recession. But unless the US goes kaput it will not go broke, nor are any of the companies much threatened by innovation.
FWIW think much of Buffet’s success has little to do with what sometimes has been written about him. He has exceptional ability to judge character in his CEOs and has a memory and mind for figures that allows him to make decisions in seconds that others can only do by computer after consulting other people. Also he lets talented people run his businesses but keeps tight hold on salary ($2 million annual salary incentivizes as well as $20 million) no stock diluting executive bonuses (they are already paid to do a good job), all large capital expenditures must be approved by him, no merger so that the CEO can say “mine is bigger than yours”
Historically this has produced returns beating the indices.
worth thinking about
I am tempted. Maybe after this Bear has run it’s course…
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http://discussion.fool.com/ummmm-i-suspect-brka-is-one-of-them-i…
However, do have a glance at this post.
http://discussion.fool.com/jim-do-you-have-any-historical-data-o…
The ratio on that same scale is 0.780 right now.
A fit to that 14 year model would suggest a central expectation of about a 27% return in the next year.
(not a whole lot of samples at the extremes, though!)
Last time it was this cheap was a two week stretch straddling the end of May 2012.
The price went up 38% in the subsequent year.
The time before that was August-September 2011; the price rose about 20-22% in the following year.
I’m not saying this will happen again—the future is uncertain.
But it has been cheaper than on this metric only 1.5% of the time in the last 20 years, so the omens are pretty good.
If 2016 is another blah year for the price, I’d expect 2017 to be outstanding.
I could be wrong, but that would certainly be my expectation, barring a major global melt down.
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Berkshire has so many interests that in a way it is close to an index. So I think a certain part of your portfolio devoted to index based ETF (like SPY ) could replaced by Berkshire.
It is similar to an index in that it owns a large number of diverse entities.
But the similarities mostly end there.
Berkshire has many advantages over “the market”:
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as a conglomerate run by rational and honest people (many have not), it is the ideal structure to take capital from underperforming areas (or areas simply lacking opportunity for re-investent) and transfer it to the most provising areas. (If you are at all interested in Berkshire–and you should be–you absolutely must read the letters written at the end of last years annual shareholder letter by both Buffett and Munger celebrating their 50th anniversary).
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they are able to fund the purchase of much of that index-resembling stock portfolio with their insurance float. And assuming they can continue the pattern of the last dozen years, this is really an amazing trick: they use other peoples’ money to hold those stocks, and those other people are paying them to hold it! Try that at home.
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the medium-term returns for Berkshire stock from today’s price is almost a certainty to outperform the market. For as was pointed out in the link in the opening post, Berkshire is historically-underpriced right now. In complete contradistinction to that, the S&P 500 has virtually never been more expensive than this. If the intrinsic vale of both advances at roughly the same rate and they both mean-revert regarding valuations, BRK will kill SPY.
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Commoncents33,
I agree with most of what you posted, especially the part about Berkshire being cheap, but not the part about the S&P 500 virtually never being more expensive than this. PE’s were quite a bit higher in 1999 and early 2000.
As a matter of fact, Buffett stated that he thought investors in equities back then would be disappointed in returns over the next decade and was proven correct. He is not saying that today. A few months ago, when the stock market was higher, he said that he thought equities were about fairly valued. He thought they would only be expensive if interest rates were considerably higher. He went on to say if interest rates stayed at current low levels, stocks were actually still cheap.
Don
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Hi Mauser,
Please let me know “when this Bear has run its course.” That would be extremely helpful.
David
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CMFdrdm
At best I won’t “know” when the bear (if it is a bear rather than normal,less than 20% correction)is over.
All I will have is a statistics probability that it is close to over, or in the early stages of the next bull. Close either time wise or price wise, sometimes but not always both. Something with a 75% probability is good enough for me but it still means a 25% chance of being wrong.
And there is always the possibility of Black Swan event, a meteor hitting NY etc, something that can not be factored in. By nature so rare that odds can’t be determined.
Since the banking system is not at risk I would guess this bear would be a more normal cyclical type ,not a 1929, early 1930’s 2008 super bear. but that is just a guess, the joker in the deck being that nobody has experience in what happens after prolonged zero interest rates. This must have resulted in some companies borrowing more than they can payback and some big investors going too for out on the risk cure.
Economists can’t predict normal recessions and this one may or may not be normal. There’s not any proof yet that we are even starting a recession beyond market action itself.
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Here is my BRK story. Back in 1989 I had read a lot about Buffet for some reason. I think because I liked a Ben Graham value approach and I really respected Buffett. So I had $4000 cash in my IRA and BRK.A was about $4000 at the time. I really wanted a share, but I convinced myself that $4000 was TOO MUCH to pay for a stock. We all know that was stupid and not fact based and today it sits around $190K and I still have to work for a living.
When the big crash came, I finally had my chance and took advantage of it - though I bought the B shares. I have just tracked them in my MF Scorecard. I bought 3 lots, Oct 2008, Dec 2008 and Feb 2009, just before THE bottom. My scorecard says they are up about 76%, 90% and 136% respectively. Awesome! Or not. Vs the S&P, they are -75%, -62% and -39%
The time before that was August-September 2011; the price rose about 20-22% in the following year.
Yahoo charts from 9/1/2011 to 9/1/2012 show BRKA up 18.03%
Nax up 20.46%
S&P up 16.78%
So this buy indicator for BRK maybe ain’t so great?
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