For those of us who have been around a bit longer, does anyone have the 20 year comparison?
For those of us who have been around a bit longer, does anyone have the 20 year comparison?
https://stockcharts.com/freecharts/perf.php?SPY,BRK/B&n=…
Look at that endpoint! 
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we’ve debated the value gap between Berkshire and the market broadly. Now that gap is a bit smaller, the question is whether it has flipped.
Nope.
Any other questions?
: )
Jim
Berkshire isn’t expensive on any metric. The broad US market isn’t cheap on any metric.
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Thanks for sharing. Does the S&P return include dividends?
“Berkshire isn’t expensive on any metric. The broad US market isn’t cheap on any metric.”
Jim, do you have a current opinion on BRK LEAPS ?
I have used these in the past to add some “Party” to the “Bowling-Ally” you referred to in the ref.post.
https://discussion.fool.com/in-this-respect-kelbon-is-right-ther…
I Shirt-tailed your comments last week on the BRK/B 01/19/2024 140.00 Calls,
definitely owe you a bottle of your finest! 
ciao
Does the S&P return include dividends?
Yes, the Perf Charts are total return.
https://support.stockcharts.com/doku.php?id=other-tools:perf…
Q: Does the Percent Change value displayed reflect the “Total Return” for each stock?
A: In general, yes, as long as you are not using “unadjusted” ticker symbols (i.e. ones that start with an underscore).
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Jim, do you have a current opinion on BRK LEAPS
Executive summary: “Meh”
I own a bunch of them.
But I’m not buying any at the moment.
The valuation multiple is pretty good, and the short term market prices risks pretty substantial,
so the chances seem pretty good that there will be a better time to load up some time in future.
My magic 8-ball suggests one might reasonably expect a one year return of perhaps inflation + 4.0%.
The actual result will be very different, but the odds of something better or worse seem to be about 50/50.
(range inflation + 0.7% to inflation + 7.5%, depending on which inputs I use)
Clearly 4% is a pretty modest return number for the short term.
Calls give leverage, and leverage makes the most sense when a short term good result seems pretty likely.
That might not be right now.
For those like me who have to raise a little cash for living expenses from time to time, now probably isn’t such a bad time to do so.
Jim
4 Likes
thank you… thought so but wanted to check.
material outperformance over 20 years. Hard to argue with. Of course, many BRK investors here go heavy in periods of cheapness and lighten up when more fully valued.
The Index growth, future cash generation is superior to Berkshire. Just saying…
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The Index growth, future cash generation is superior to Berkshire. Just saying…
That would be an extremely good point if it had any basis in fact.
I’m unable to find any that would lead to that conclusion. Perhaps you have other figures?
Jim
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Isn’t it all really about buying Apple with one wrapper versus another…?
OK OK kidding but we know Apple’s about ~7% of the S&P, a giant piece of Berkshire also. iPhone’s a plenty!
I have a bunch of tax lots since 12/31/12. They’re all ahead of the SPX Total return index. The oldest one, 12/31/12, 15.3% annualized. Held in a taxable account. No tax consequences. That’s with all the ‘inferior’ businesses and management at Berkshire. Of course I’m being facetious. Nuff said.
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That would be an extremely good point if it had any basis in fact
Probably I may not be alive, but in the next 10, 15, 25 years the Index will continue to grow and outpace Berkshire.
Berkshire will slow down to GDP growth or even below, while index because the components are refreshed will continue to outpace GDP. It doesn’t require genius to figure this out.
Even If I give facts, and data you are going to smear them. We have seen that movie thousand times here.
the Index will continue to grow and outpace Berkshire.
…
Even If I give facts, and data you are going to smear them. We have seen that movie thousand times here.
As I expected, you don’t have any facts to support your assertion.
Not a big surprise, since it’s wrong. That often makes it hard to find support for the idea.
Random observation:
For the value generation of the S&P 500, it goes into dividends and increases in retained assets.
Any given year’s profits might be high or low, but over time that’s where the value goes.
Last 12 years, growth in book per share of the S&P 500 has been 5.89%/year.
Dividend yield has been almost precisely 2.0%/year, so a not-bad proxy for the rate of total value creation is 8.89%/year.
Berkshire’s value per share progress is (so far) pretty well approximated by growth in book per share.
(a bit of an understatement due to buybacks, but that’s not a big issue yet)
Book per share has grown at 12.62%/year in the same stretch.
Advantage Berkshire: 4.73%/year.
You can pick any number of different metrics, but all of them give the same result:
A share of Berkshire has continued to increase in value quite a bit more quickly than a point of the S&P 500.
The S&P 500 market price total return has kept up with Berkshire in the last 5-10 years solely by getting progressively more expensive. Berkshire hasn’t.
Sure, the future might different. But it hasn’t changed yet, and it’s unlikely to change dramatically overnight.
Another random metric: P/B of the S&P 500 varied only in the range 1.75 to 3.0 in the 16 years 2002 to 2017.
So, a reasonable definition of “normal” might be somewhere near the middle of that range.
It’s about 4.4 now, down a fair bit from its recent peak. 85% above the middle of the prior range.
Tax rates are a bit lower, but that’s not enough to explain a gap that size.
It is flatly contrary to reality to suggest that the index results “will continue to … outpace Berkshire”, because it hasn’t.
Don’t let the actual facts hit you on the way out. Sorry, it’s a shame to ruin a person’s favoured false meme.
Spend a few minutes to gather some data and try using those to support your assertions. It’s quite rewarding if you give it a chance.
It’s not complicated.
The key observations are simple and unequivocal:
- Berkshire isn’t any more expensive than it was 5, 10, 15, 20 years ago on any metric.
- The S&P is quite a bit more expensive than it was 5, 10, 15, years ago on every metric.
- Based on market prices, total returns for the two have been quite comparable.
- Therefore, the only reason the two market results are comparable is that the S&P has been getting steadily more expensive.
Needless to say, that is not a trend one would want to extrapolate.
Sure, Berkshire’s business results might deteriorate tomorrow. They might stop generating value more quickly than the S&P 500 at any time.
But thus far observable facts offer evidence only to the contrary.
Yup, I’m predictable. I like to stay in touch with reality.
Jim
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Last 12 years, growth in book per share of the S&P 500 has been 5.89%/year.
Dividend yield has been almost precisely 2.0%/year, so a not-bad proxy for the rate of total value creation is 8.89%/year.
Berkshire’s value per share progress is (so far) pretty well approximated by growth in book per share.
(a bit of an understatement due to buybacks, but that’s not a big issue yet)
Book per share has grown at 12.62%/year in the same stretch.
Advantage Berkshire: 4.73%/year.
This argument and all these numbers are correct except one: S&P value creation has been 7.89% (not 8.89%), compared to Berkshire’s 12.62%, for a difference of 4.73%/year.
And I might add, that is a very impressive number, for such a stodgy collection of assets in has-been industries. 1.0473^12=1.74, meaning that in 12 years, Berkshire’s value creation has outpaced the S&P by 74%. I can live with boring, when it is beating the market by such a large margin.
dtb
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As I expected, you don’t have any facts to support your assertion.
Let us talk about all the assertions presented as “facts” that are plainly wrong but received 50’s and hundreads of rec’s?
Some qualitative…
- AWS is a commodity provider, IBM is a premium margin business?
- AWS is taking shareholder capital and giving it to customers to gain revenue
- Tesla is just a car company, it is battery tech has no value
Plain simple accounting 101 - Debt is not part of Enterprise Value
- AWS doing sale lease back is a fraud?
…
I could go on. It is useless.
* Berkshire isn’t any more expensive than it was 5, 10, 15, 20 years ago on any metric.
* The S&P is quite a bit more expensive than it was 5, 10, 15, years ago on every metric.
This conveniently ignores Berkshires $100 B+ value created in Apple is driven by Apple’s multiple expansion. Also, Buffett has guided move away from BV. Of course, to do that requires lot more complicated valuation metrics. Sticking to BV works for Berkshire not for other businesses.
For ex: if you look at SBUX whose equity/ BV went down from $5B to -$5B. In your world SBUX is worth nothing, because all you have is hammer. If it is not a nail, then it doesn’t exist.
Good luck.
Kingran, like me…and Saul…your ideas are such that those in the ‘what’s working game’ label us as a fossil.
Three letters is all you need to know:
OXY
This argument and all these numbers are correct except one: S&P value creation has been 7.89% (not 8.89%), compared to Berkshire’s 12.62%, for a difference of 4.73%/year.
My data sources are clearly better than my typing!
Sorry.
Book+dividends is not the best value metric for the S&P 500–trend real earnings is better–but it has nice hard unambiguous inputs which don’t require massaging.
Price to sales isn’t a very good metric, as it doesn’t handle comparison between different companies.
But the rate of evolution of sales per share over time for a single given security isn’t too bad,
as long as the business hasn’t had a transformative change in the interval considered.
The last big transformation at Berkshire was the BNSF deal which is now over a decade ago, having closed in Feb 2010.
(not counting the tax cuts, which affected all US companies)
In the 10 years from 2011 to 2021, Berkshire’s revenue per share rose 2.51%/year faster than that of the S&P 500.
In real terms, 2.2 times as fast: inflation + 4.57%/year instead of inflation + 2.06%/year for the S&P.
Again, sales/share is not the ideal metric of business value progress, but it’s not so bad, and has nice simple hard inputs.
And again about the same conclusion, give or take.
Jim
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In your world SBUX is worth nothing, because all you have is hammer. If it is not a nail, then it doesn’t exist.
Good luck.
How many distortions can you cram into a post?
Pretty sure Jim has cited companies with negative equity that are worth a LOT due to their earning power. Many times.
Everyone knows EV = debt + market cap - cash ie what it truly costs to completely buy and own a publicly traded company (without paying a control premium). I have never seen anyone argue otherwise. What are you talking about?
He has also mentioned the Apple overvaluation and the consequent haircut to the IV.
None are so blind as those who refuse to see.
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Everyone knows EV = debt + market cap
Knowing is different from taking a BS position to throw shade. Someone started a post about AMZN market cap vs sales, and listed bunch of retailers market cap and their sales. My response was Market cap is not the right measure, use EV that includes debt then you will get a better comparative picture, those retailers were carrying significant debt and Amazon was not (at that time).
Now, with the slight change the argument of Amazon market cap to sales, thus Amazon is overvalued argument feel flat, that’s when Debt should not be included in EV argument was made.
There are so many “Gems from Jim” like that.
None are so blind as those who refuse to see.
I rest my case.