BRK vs SPX

:scream:.

1 Like

LOL, off topic but relevant to opposition to blaming/condemning? Unlike div20 here’s a man who isn’t obsessed with others “failures” and invests with gusto (???) - Bill Miller:

Consuelo: “Why the outsized Bitcoin bet? I’m assuming the other 50% is diversified?”

Miller: “Actually, close to the other 50% is in Amazon. The rest of the investments that I have are basically there to support margin debt.”

3 Likes

I do believe it is a valid topic to contemplate the S&P vs Berkshire as a purchase today for the next 3-5 years. My impression is that the S&P is “more expensive” (and I suspect Jim can back that up with legitimate data), but the arguments of the ‘self cleansing’ versus inevitable leadership transition/company aging of Berkshire are valid.

I’ve lamented quite a bit that I hold a bit in each – in some cases because my accounts only offer index funds.

Anyway, if one of you data hounds wouldn’t mind (… please?) could you share your relative price levels for Berkshire vs. S&P vs. QQEW? E.g., Berkshire is in the top 8th percentile of price-to-book over the past 15 years versus S&P in top 2 percent vs QQEW in top 4 percent?

Oh… while begging and choosing, a stat for the market cap weighted Nasdaq would be fascinating also.

It’s hard to view these types of figures in isolation without relative comparison.

Anyway, thanks all and let’s have some fortune over this coming year.

1 Like

Berkshire is in the top 8th percentile of price-to-book over the past 15 years versus S&P in top 2 percent vs QQEW in top 4 percent?..

The progress of real earnings within QQEW have been astoundingly steady since the start of 2005.
(and longer, just not quite as astoundingly steady growth)
So, I build a trend line on that to estimate today’s “on trend” level of earnings.
I’d estimate today’s price is roughly 25% above the typical multiple of the trend earnings since 2002.
(quick hack update calculation on the last time I did it with any rigour in September)
Sounds like a lot, but not really so much. If the growth rate trend holds up you’d expect maybe
three years flat and over inflation+8%/year thereafter even with an exit at the long run average multiples.
That is far better than the outlook for the S&P using the same style of reasoning.

A couple of my recent notes on the valuation levels Berkshire and the S&P.
https://discussion.fool.com/berkshire-has-been-on-a-relative-tea…

The S&P is very richly valued compared to history.
Despite what some posters aver, this is NOT the same as forecast that the market will or should crash.
It’s just noting that returns from here will necessarily be lower than historically typical–even if valuation multiples don’t fall at all.
There are only so many earnings to be extracted from the economy in future. As you pay more for that same aggregate stack of future value generation, you earn a lower rate of return on your money.
This shows up most clearly in the falling dividend yield, but the same thing happens with the earnings yield and capital gains.

Jim

9 Likes

I think your questions may be sincere, but not relevant. Individually, divi, has to deal with diversification, TSLA while it may have been a great story, it also had a significant chance of flaming out. So how much divi can bet on TSLA is the money that he can lose.

On the other hand, Berkshire can take a $10 B bet and go for a big out sized gains and if it failed, it could recover in a quarter or two.

The discussion should not be about divi, rather about Berkshire and TSLA. You can simply close the conversation saying Berkshire is not used to make those kind of binary bets.

1 Like

The other irony is I personally doubt div has amassed the wealth of many on this Board

You could have avoided this line of debate. There is always someone with bigger net worth than any one of us here. Let us discuss the ideas not our net worth.

5 Likes

Am not sure that Dividends is focusing on failure, per se.

He is perhaps hoping for more objectivity from the board, as it had in the past.

Do not expect BRK to ever be as fast a grower as the S&P 500, unless you can objectively describe a path that makes BRKA beat that index.

At the last meeting at Aksarben, a questioner at a mic asked about BRK’s growth potential. IIRC WEB said that Berkshire will not be the great grower that it was in the past.

Given the current shift in consumer habits and the massive level of sovereign debt, how can it be any different?

As Charlie would say, lower your expectations.

I wish WEB, Charlie and everyone well, but if Charlie were allocating big capital for BRK… I have a feeling that there might be less cash on the balance sheet.

WEB is never going to let down his original investors. His strategy has become very defensive.

And all of that is ok…

As one who has been on this board almost since its inception and appreciated its past civility, I have seen a decline in objectivity and an increase in inefficient subjective confrontation.

If you are an accredited investor and have money to invest privately for grandchildren, please consider Redwood Materials, and then hold for decades. (Remember WEB’s Rip van Winkle analogy?)

But that is not investment advice. Just an objective observation.

Sincerely,

jan

:^)

4 Likes

Why would he buy Tesla when he already has an investment in BYD ?

Why would he buy Tesla when he already has an investment in BYD ?

Couple of ways we can answer, he owned multiple airlines, banks, credit card issuers, etc. Or more obvious answer TSLA is far superior business compared to BYD.

1 Like

WEB and Charlie

should consider investing in

REDWOOD MATERIALS.

This company has multi-bagger potential if you have a long holding period, IMHO.

I imagine their companies would be recognized as accredited investors.

Google them.

It seems grievance has overcome you

Still focused on me I see

OXY a mistake ?

Oxy in my opinion is by far the largest mistake. Monumental. The approach that has made WEB so successful, failed him. The problem was failure of imagination.
WEB has been skewing far towards safety and incase of Oxy (and several others) it turned out to be exactly opposite.
Gone is the upbeat guy who walked into the Geico office on a weekend trying to understand insurance. Instead we have this guy who look for safety and panics and sells (pandemic).

Just 3 month later the $60 OXY Preferreds don’t look to shabby with ~7.5 years more to run, ehh Divi? I continue to think that the OXY preferred investment will be a homerun.

4 Likes

WEB has been skewing far towards safety and incase of Oxy (and several others) it turned out to be exactly opposite.
Gone is the upbeat guy who walked into the Geico office on a weekend trying to understand insurance. Instead we have this guy who look for safety and panics and sells (pandemic).

====

Just 3 month later the $60 OXY Preferreds don’t look to shabby with ~7.5 years more to run, ehh Divi? I continue to think that the OXY preferred investment will be a homerun.

Yes, this Buffett deal is looking pretty good now.

On the other hand, it could have been even better: the preferred’s pay a quarterly 2% dividend, i.e. $200 million every quarter. Occidental has the option to pay this dividend out in shares, which they did, in early 2020, when the shares were falling from about $30 to a nadir of under $10. (As is common with desperate companies, Occidental issued shares when the share price was rock bottom…) In Q2, Buffett sold all 18.9 million shares Berkshire had accumulated, presumably for about $20/share. Shares are now close to $60, so in retrospect, Buffett would have done even better had he been a little more confident in Occidental’s prospects. Particularly since Carl Icahn subsequently found an ingenious way to reduce the value of the warrants*.

Still, an 8% annual return, plus an option to buy $10b worth shares at $60/share, in 7.5 years, is looking pretty awesome right now. It looks like we may need more of these downbeat, panicky, skewed towards safety moves, not less.

dtb

*Occidental granted all existing shareholders dilutive warrants of their own, 1/8 of a warrant for each share owned, making Berkshire’s conversion option less valuable. I haven’t looked into the fine print of the Berkshire deal - hopefully, there is some anti-dilution clause which prevents Occidental from issuing dividends or warrants that would limit the future value of Occidental shares. If not, I hope future Buffett deals will have an extra anti-Icahn clause…

5 Likes

According to an SEC filing this evening, Berkshire has purchased nearly 30 million shares of OXY since the end of 2021. Its stake in OXY is now “113,670,025.81 shares of Common Stock (83,858,848.81 of which represent shares underlying the Berkshire Warrants).” I guess WEB and dividends20 will just have to agree to disagree on this one. :wink:

https://www.sec.gov/Archives/edgar/data/0001067983/000119312…

https://www.barrons.com/articles/warren-buffett-berkshire-oc…

Now this purchase is bit of a head-scratcher. WEB sold the shares Berky received as dividends and now, he is making multi billion investment? I understand the war, and potential future sanction on Russian oil has changed the dynamics, but still…

I guess we just have to trust WEB, and hope he knows what he is doing, rather than trying to understand.