Period BRK S&P
----------------------
1 **2%** -6%
3 48% **52%**
5 64% **85%**
10 243% **256%**
15 267% **279%**
20 485% **554%**
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As of today’s date? Dividends included?
m
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As of today’s date? Dividends included?
As of posting date. Dividends are included.
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Astrid will be ok with all of her inheritance in the S&P 500.
Wow, I had forgotten how undervalued BRK was relative to S&P - thanks for sharing.
tecmo
…
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Wow, I had forgotten how undervalued BRK was relative to S&P - thanks for sharing.
tecmo
Not following this statement - how are you comparing the valuation of BRK vs S&P?
All I see posted in this thread are total returns.
It’s an insider joke, for long-time readers here.
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I had forgotten how undervalued BRK was relative to S&P
…
Not following this statement - how are you comparing the valuation of BRK vs S&P?
For the more literal answer, which is also useful—
Consider any two investments A and B.
In some chosen time interval:
- the value of A has risen more rapidly than the value of B
- the price of B has risen more rapidly than the price of A
In that situation, you know that A has become more undervalued relative to B.
In our case:
The value of a Berkshire share has risen in value about 2.13%/year faster than the S&P in the last ten years.
But SPY has returned 0.22%/year more in market returns in the same stretch.
So, relative to the S&P 500, Berkshire has become much cheaper.
About 24% more value generated in a decade, but no price return advantage.
The numbers, if anyone is interested:
I valued the S&P 500 with the rise in smoothed real earnings per index point, plus the average dividend yield.
Index value up inflation plus 4.61%/year, add 1.93%/year average yield in the last decade, total value gain inflation + 6.54%/year.
Almost precisely Siegel’s constant.
I valued Berkshire with real book per share…surprisingly, still a pretty good yardstick for now.
Berkshire’s real book per share is up 8.68%/year in the last 10 years.
Not on topic, but since I had the number handy:
On the subject of the valuation level of the S&P, a drop of about -19% to 3273 would bring the index to its average valuation level since 1990.
A drop of about -36% to 2614 would bring it to the 20th percentile valuation multiple since 1990, what I think of as “the low end of the normal range”.
A drop of -79% to 837 would bring it to the same (outrageously cheap) valuation level of August 1982.
Those aren’t predictions, just observations. Things we know are possible because they have already happened at least once.
For QQQE, my latest valuation exercise suggests that the average valuation level in the last couple of decades suggests a “normal” price of about $62-68 these days.
Current price is $67.90, at the high end of that range, but certainly not painfully overvalued.
My best single guess “fair value” number would be about $64, suggesting maybe 6% to the rich side…not material. Not cheap.
Jim
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GOOGL?
Albert Einstein: Insanity is doing the same thing over and over and expecting different results.
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Not following this statement - how are you comparing the valuation of BRK vs S&P?
Comparing is an objective exercise. But rarely they are objective. Also, for Berkshire folks use book value as a measure of value and for SP500, you have earnings. You can use two different methods to arrive value, where the challenge is when one is influenced by the thought that Berkshire should trade at 1.5, 1.6 or 1.7 times of book value and SP500 should trade at 15 PE.
That’s where subjective enters and objective leaves the discussion.
All the posts on this thread are posturing, to express their belief and nothing to do with valuation. For ex: Divi’s point is pretty simple, don’t bother with individual stock analysis just invest in Index, you are better off. May be it is a great message, saying that one an Individual stock board, generates not objective discussion, especially on this board. Berkshire and WEB has cultish following not here but in the investment world.
So… have a wonderful weekend.
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BRK’s PE is 2/3 of the S&P index and BRK has normalized well-diversified annual earnings around $48B/year, and steadily growing. Price, predictable earnings and cash flow and quality management are my keys. As Mr. Lynch has said:
“If you can follow only one bit of data, follow the earnings—assuming the company in question has earnings. As you’ll see in this text, I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction.”
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Albert Einstein: Insanity is doing the same thing over and over and expecting different results.
If I flip a coin 20x and it turns up heads every time, in statistics class they say the probability of it turning up tails is 50% the next time. I suppose the man-on-the-street who has not studied probability would think the odds of turning up tails is even greater than 50%.
My guess is that it is an unfair coin and I would stop playing.
BTW, I read somewhere that if you flip a U.S. coin (I forget which one) the odds of its turning up heads is very slightly greater than tails (or vice-versa – I forget which). U.S. coins are not manufactured to be fair in coin-flipping.
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If I flip a coin 20x and it turns up heads every time, in statistics class they say the probability of it turning up tails is 50% the next time. I suppose the man-on-the-street who has not studied probability would think the odds of turning up tails is even greater than 50%.
The man on the street is not that wrong. What you are referring to, the statistical law:
“Each coin flip is completely independent from the previous coin toss, so the chances for head or tails is always 0.5”
reflects just a lack of knowledge, of not knowing the whole coin tossing history. If you’d knew the history of all coin tosses to be 1:1 at a given moment, would now toss a coin 20x and get heads each time, the probability of tails for the next toss would be greater than 0.5
reflects just a lack of knowledge, of not knowing the whole coin tossing history. If you’d knew the history of all coin tosses to be 1:1 at a given moment, would now toss a coin 20x and get heads each time, the probability of tails for the next toss would be greater than 0.5
Wrong. What is your basis for this claim?
If anything knowing the coin has yielded heads 20 times in a row would lead you to suspect the coin isn’t a fair 50/50 coin so you might bias your estimate towards heads. If the coin is a verified 50/50 coin, then the next toss is 50/50 unaffected by the prior streak of 20 heads.
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If anything knowing the coin has yielded heads 20 times in a row would lead you to suspect the coin isn’t a fair 50/50 coin so you might bias your estimate towards heads
Classic correlation coefficient confusion.
The man on the street is not that wrong. What you are referring to, the statistical law:
“Each coin flip is completely independent from the previous coin toss, so the chances for head or tails is always 0.5”
reflects just a lack of knowledge, of not knowing the whole coin tossing history.
What would more history tell me that the 20 tosses would not? The chances that tossing a fair coin 20x and getting all heads is about 1 in a million. Do I really need more history? If I make 30 tosses and get all heads, the chances of that are around 1 in a billion. If I do 40 tosses, 1 in a trillion. 50 tosses and we are in territory of the National debt… .
When do you decide the coin is unfair and quit the game?
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What would more history tell me that the 20 tosses would not? …
To edge back towards the topic at hand, we have about a billion coin tosses that tell us that valuation multiples don’t expand without limit.
It’s almost everything you need to know in investing.
Jim
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In next 15 years, S&P will have newer versions of capital compounders like Bezos, Musks, Gates and Zuckerberg etc.
who will innovate and solve global problems of health, education and energy.
In next 15 years, age and size will be an anchor around BRK.
What is your confidence that Greg Abel be able to do what WEB could not in last 15 years and outperform S&P (despite recurring claims of “wound spring”)?
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“If anything knowing the coin has yielded heads 20 times in a row would lead you to suspect the coin isn’t a fair 50/50 coin so you might bias your estimate towards heads”
Classic correlation coefficient confusion.
What do you mean?
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