Amen. That’s the only thing that counts, rest are mere posturing.
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In last 15 years, BRK underperformed even though every one said S&P was overvalued at the start and BRK was a loaded spring.
Now BRK degree of difficulty has increased.
It would be wise to start taking money out of BRK slowly and allocating DCA to the S&P index.
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Fifteen years ago at the start of 2009, the S&P 500 was down close to 50% from its peak. I’m sure some people here still thought it was overvalued at the time, but not “everyone” [sic], as you say. You make a lot of confident, definitive statements. I hope you don’t lose a lot of money due to overconfidence.
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In last 15 years…
How many times did we hear that S&P index is “massively overvalued” ?
How many times did we hear about impending doom and gloom ?
How many threads discussed Amazon and Tesla as fraud ?
How many folks lined up to buy ADS and CBI due to “low PE” ?
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CBI is a gem!!! When I pointed analysts are concerned talking about viability of the firm, “the management didn’t become stupid overnight”, Manlobi, bless his heart, wrote a mini novel with 10 year earnings and valuation. That heated discussion prompted him to leave posting in this board to go and start his own board in fooldom. You know how toxic CBI’s fixed bid contract issues were CBI went bankrupt, and it was acquired in bankruptcy court the firm that bought CBI also went bankrupt. Those fixed bid contracts survived the bankruptcy and took another firm. Yeah it is those fixed bid contracts what this board eloquently argued “the management didn’t become stupid overnight”
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The market cap of the top 10 U.S. technology stocks is now greater than the value of the entire stock markets of Canada, Britain, France and Germany combined. Methinks there might be a bit of overvaluation of one, or undervaluation of the other. Call me a perma-bear, but look at the facts too.
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You can do a pair trade and make yourself a bunch of money.
The framing is flawed. The top 10 technology stocks are large,global businesses that have a very large customer base across the world. Canada, britain etc are tiny economies by comparison. To make the comparison even more difficult to do, the major indexes in countries like the UK contain hardly any local companies either - representing an ex-growth cross section of the global banking, energy and pharma sectors.
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I’m not talking about their index, I’m comparing their entire market. It reminds me of a time when the real estate of greater Tokyo was priced higher than the entire USA. It did not remain so out of whack.
Here’s some food for thought:
P/E ratio in Canada 12, UK 14, France 15 Germany 12, S&P 500— 25
I’m sure the USA deserves some premium, but how much? The long term increase in the price of the S&P has been goosed by a long term fall in corporate tax rates, and low interest rates, and ever increasing PE. I find it unlikely that corporate tax rates will fall further, interest rates will return to rock bottom, or that multiples will continue to expand. If you predict the S&P to increase faster than dividends plus the long term growth of corporate profits, you need to specify what parameters will change to produce more outperformance. The Tinkerbelle approach, clap if you believe, will not cut it.
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Plot the technology as part of SP500 market cap and you will see tech is getting bigger and bigger in SP500 over the last few decades. Tech, being capital light, higher margins, explosive growth means they have higher PE. Now, compare that to Canada for ex, which is resources play. Compare that with Energy sector PE in US, you will see parallels. Also, Canada PE is along the historical lines.
Now compared to US, India’s PE is even higher!! But I find it bullish, because India is expected to grow faster and as the earnings grow the PE in future years shrink. This is what happened to many tech companies in US. Often higher valuation means, the market is expecting the company to grow faster, or its profits to accelerate.
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OK, so you think the S&P 500 will appreciate faster than earnings growth due to future higher PE ratios. What level would indicate a frothy market to you?
I am not interested in these kind of rhetorical questions. I am least interested in changing your opinion either. Discussions I am open…
Like I said earlier, if you are truly convinced that there will be some mean reversion, you can do a pair trade and make a bunch of money. Simply short the S&P against a long of Canada, UK, France, and Germany. Voila, when mean reversion happens, you make a bunch of money.
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I did not mean it as a rhetorical question. If the S&P is to outperform BRK over the next X number of years, certain things have to happen. Some examples: Corporate earning could to grow faster than their long term mean. The collection of cash cow companies in BRK could see reduced profits. The PE ratio of the index could continue higher. Interest rates could drop to 1-2%, justifying higher stock prices and sapping the return of the BRK cash horde.
I would like to hear some ideas of why they expect the index to do better going forward other than “it did better over the past X years.”
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Haven’t these questions asked and answered many times over last 15 years ? Raise your hand if any of you perma-bears spotted NVDA as a $T market cap company 15 years ago.
The problem is with BRK and its size, low margin operating companies and aging CEO. The capital allocation machine has been floundering. With the exception of Apple, everything has been a dud. T&T appear to be duds. OXY is the latest example.
S&P on the other hand will thrive as India marches towards becoming a developed country and China’s GDP becomes 3x of US in coming decades. AGI will usher in the age if abundance and space colonization becomes real Young generation does things the oldies couldn’t.
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This may be possible, but keep in mind, US still has favorable demographics and China’s population is shrinking.
I’m not so sure if this is possible anymore. Chine will be fighting an insoluble demographic issue during the coming decades.
US has demographic problem for a while now. Immigration is helping with the collapse. Same with Europe.
There is no reason China cannot import young talent from neighboring south east poor asian countries looking for better life. However China has to raise the per capita for its own population first and that will take decade.
Actually, SPY outperformance is pretty much guaranteed over time. You need to make a case why you think Berkshire can keep up with SPY.
You need to get this out of your head. It is just PE going up forever is the only thing going for SPY is the worst take.
Crowdstrike IPO’ed on 2019 with $10 B valuation, their 2018 revenue is $250 M. Fast forward today they are going to close 2023 with $3 Billion or $3000 M revenue. The revenue 10xed. Their GM is 75%. If you looked at their GAAP profits, you would have missed buying into that company. They were not making any money then, yes. It is like your baby it is not making any money, it is not smarter, it has no assets, but has a long future, where she is going to do way better than you or your dad. Babies, as they get into their teens are added to SPY, adding to the index longevity, continued success. Laggards are taken out. Buffett did this first with buying companies and stock investments (which throws off significant dividends). Great, but now Berkshire is not getting them when they are teens, mostly they are getting them at their 60s. For WEB they may be youngling, but we should know better. I am a great admirer of WEB for making $100 B on Apple investment. It is unparalleled. The superlatives don’t do justice. But there is no bench, meaning there are no baby WEB’s, what he could do is not something you can replicate. But SPY will keep adding successful companies and removing laggerds.
Now, go ahead and make me the case why you think Berkshire is going to outperform. You talked about cashcow, give me an idea of how their FCF is going to look like and how it is going to be deployed.
BTW, CRWD will most likely be added to SP500 in Q1 rebalancing.
PS: while I am using 2018, 2023, technically they close the year on Jan, so they are more like 2019 and 2024 numbers.
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The earnings growth of one cherry picked company may be impressive, but the earnings growth of the entire index is not. S&P smoothed real earnings are up inflation + 4.614%/year in the last 10 years and inflation + 3.837%/year in the last 20 years.
If you tell me the S&P is going to do better than typical BRK earnings going forward, without an increase in PE, it means you are predicting a significant jump in earnings of a wide swath of the industrial base of the US.
If you tell me you are going to beat it by predicting which small companies will thrive, that makes sense. Just tell me which companies to buy:)
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