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.