alwaysdrawing

2018 was +31.4% pretax, although at one stage in Q3 I was up over 100% on the year and unfortunately Q4 had my largest position decline by over 50% as well as significant declines on most of the portfolio names. Biggest winners were far out of the money SVXY puts during the February VIX spike, and TTD. Biggest losers were small cap tech stocks and Tesla puts. My current portfolio is very tail oriented, with heavy weights to fast growing tech businesses and also shorts/hedges/puts on bubble/fraud names and China (Tesla, MDXG, FXI, BABA, JD, others).

Most "value" investors are really good at valuing bonds. Stable, profitable companies are basically bonds--easy to value, and thus easy to see if they are under-valued (so long as you are generally right about the future cash flows). Investing in small, fast growing companies is probably closer to evaluating weighted probabilities. Especially on the good side of the distribution, if you are right, then you will do well. What's the right value for a software company that has never made a profit and yet is growing 100%+/year with a long runway? Doing a DCF calculation for that type of company doesn't make any sense....the values make the model useless since the discount rate, growth rate, and any risk adjustments are pulled out of thin air. Can someone who is good at judging probabilities of those companies do well? Of course. Can they be a value investor? Why not? I think this Bezos quote sums it up well: "We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments." The above is why Einhorn has done horribly--companies that seemed undervalued were really valued correctly or over-valued because the business conditions had changed (e.g. Macy's). On the other side, he tried to look at companies like Amazon through his traditional valuation lens, and it didn't make sense, so he shorted. He was just wrong--those trades were both disastrous because he misjudged both companies badly. There is an argument to be made that Einhorn will be vindicated in the long term, however I doubt it. He wasn't early--he was wrong. Even if some of his other shorts fall by half or more, he will have still been very wrong about them (NFLX, AMZN). Go back and read Bezos's letters back to the 90s. Bezos gets it, and is probably the best businessman of all time. Look at Netflix CEO Reed Hastings letters and discussions, including his letter to Whitney Tilson. He was just right. I personally don't see how you could ever short that type of company, but even moreso, I think it was knowable that those companies would do well. I have never owned Netflix (I thought it was always overvalued), however I think I was just wrong. I have owned Amazon (although no longer), and think that it was very widely misunderstood, and still is. Anyway, my 2 cents is that people looking for what worked for value investors of the past may have opportunities again, however there are other ways to make money in investing, and understanding businesses will become more valuable of a skill than anything Graham taught on valuation. Markets are dynamic, and what worked yesterday can not work tomorrow. Value investing is about finding under-valued investments, not about following valuation yardsticks.

Inexact numbers, but these are the share price differences in the big positions (total of 80% of the portfolio) Ticker Weight Change AAPL 23.1% 10.16% WFC 12.7% 2.98% KHC 10.6% 4.00% BAC 10.1% -3.11% KO 9.0% 0.21% AXP 7.6% 4.56% PSX 2.7% 16.18% USB 2.3% -1.29% MCO 2.2% 6.04% Overall that 80% of the portfolio was up $7 billion in value (about 4.6%), share price was down 5.8%. The remainder of the portfolio you can calculate, but shouldn't be a huge impact. We obviously also do not know what buys/sells happened in Q2

Berkshire itself is down 5-6% in Q2, and the public securities are up around 7 billion this quarter (4 billion of which is due to AAPL, a very fine investment), so depending how the closely held part of the company does, the relative value of BRK is improving. Price to book will possibly be below 1.3, which puts it in buyback territory (stated as 1.2x book) Here's hoping Uncle Warren sells KO for a giant taxable gain, and buys back BRK.B or almost any other company.

I totally agree with the above. Except the stock price is almost 10x book....remind me what that means for investors today? Will they be earning 20-30% on their investment? or 10% of that since they paid 10x the price of the book value equity? At least they have great revenue growth: 2015 44,294,000 2016 41,863,000 2017 35,410,000 2018 Estimate 31,800,000 Great company. Sure it was a 10 bagger for Buffett....but does anyone think that it's the best place for his money? I would take any random other S&P 100 company over KO...the price is silly.

I feel like I've steered this discussion off the rails here, although I'm surprised the discussion became so toxic. That was not my intention when I posted in this thread. I did want to point out that I like Berkshire's wholly owned insurance and utility companies, however I did not like the makeup of the common stock portfolio, and tried to give a surface level criticism of the positions and my thoughts on their prospects. I didn't want to set off a firestorm--it doesn't seem unusual or out there to think stocks like KO and AXP are not exciting or value picks today. If you disagree, that's fine....eventually we will find out.

How is what I own in my portfolio related to whether or not Berkshire Hathaway stock is cheap or fairly valued? Especially if those securities could not reasonably be purchased by Berkshire in volumes enough to move the needle on their portfolio? If I want to share random tickers I hold or investment ideas, I will share them in their own threads....this thread isn't really designed to get feedback or criticism about investments unrelated to BRK.

I'd consider that off topic. <10% of my personal portfolio contains securities with a large enough market cap to be relevant for consideration for Berkshire. I'm pleased but not satisfied with my returns, and they have outperformed the S&P 500 and Berkshire by a comfortable margin.

To answer the above, no I don't think he'd sell Geico because of his aversion to selling controlled businesses, but I think he would have sold if he was back in the profit maximization days. As far as core holdings--I find the whole concept laughable. Buffett himself regularly says that at one price a security makes sense and at another price it's silly. I believe Buffett should sell some of the stocks at silly prices, and I believe that some of his "core" holdings are at silly prices relative to their future prospects. In fact, if he does view them as core holdings that he would never sell, he is tying his hands behind his back and billions of dollars of shareholder capital for a silly reason. At today's prices, these companies will not make Buffett or his investors materially richer over the next 10 years. There are huge opportunity costs. I believe Buffett himself would not buy these stocks if he had $10 million, and I also think he wouldn't buy them if he only had $10 billion. In fact, if his ownership stake wasn't so huge, and selling wouldn't itself possibly cause disruptions in the stock price, I believe he already would have sold. I have not heard a cogent argument that any of those stocks are poised to earn superior returns over the next 1, 5 or 10 years. Buffett earned his reputation, deservedly, on concentrated positions in undervalued securities. Anyone who thinks the stocks in Buffett's portfolio resemble the stocks of 40, 30 or 20 years ago is crazy. Even 10 or 5 years ago the portfolio looked better than now. Part of the difference is because stocks have done better than their underlying performance. The prices today are silly, and neither offer a margin of safety, or the prospect of superior future returns. I'll take my own portfolio against Buffett's common stock holdings. That is not to say that Buffett isn't an incredible analyst or that Berkshire's operating companies aren't going to do fine. It's merely a comment on the construction of the current common stock portfolio.

I believe Buffett also believes that some of the long held common stock holdings are overvalued and that is why he added this note in the 2016 letter:

I believe Buffett bought an addition $5 billion in Kraft as the merger completed in 2015, raising his basis to $17 billion, although I could be wrong there. If that's the case it's not exactly the best return during the 2013-2018 period. Correct me if I'm wrong on his basis, but I believe the prefs were the only part of that deal that did OK. Q4 2015 isn't all that recent, and how well have those purchases done? None of this affects what my overarching point is: much of the current common stock portfolio will not outperform over the next 10 years. I think the S&P 500 is probably in a better position than BRK [edit: BRK's common portfolio. I think the controlled businesses will do fine and better than the S&P], with the exception that in a downturn Buffett's pile of cash is likely to get some deals similar to previous sweetheart deals like the Goldman and BAC prefs in 2008. That optionality does not make those common shares any better investments.

Unless I'm mistaken, BAC was due to the preferred shared converting upon the common dividend yielding a higher return than the prefs, and although I don't especially like BoA, it's not as bad as the others. I wouldn't particularly call KHC a successful investment, would you? Wells Fargo is only gaining as a percentage of ownership because of buybacks by WFC, not because Buffett has been buying in the open market.

On a high level, taxes will have to be paid eventually, and if you have the opportunity to compound at higher rates it's worthwhile to do so. Whether AXP earns $5 or $7 a share, at the end of the day, the company is not growing revenues and haven't for years. The increase in earnings will be due to changes in the tax code, not improvements in the business. In fact, the business is deteriorating, as the company is run by people who think millennials want a partnership with Uber as a feature of their credit card (maybe they do--however I don't see many young people using AmEx or many who perceive it as a status symbol that they want). Look at the returns of AXP stock vs. the S&P 500 or Visa or Mastercard or Paypal. Which would you rather have owned? Simply cashing the same checks every year, without the ability to grow the business is not a recipe for success. Even with all that EPS, the true return to shareholders isn't that high because it's been (mostly) wasted trying and failing to grow, or buying back stock. Even with the buybacks, you would still have rather owned S&P, V, MA, PYPL or others. My contention is that Buffett doesn't care about maximizing returns to shareholders anymore. He cares about preserving his legacy, and because of that he will not take any chances like selling stocks like AXP for something better, because there is an immediate tax consequence, he's a high % owner so it may hurt the value of the stock, and it should hopefully still earn some positive return. Is that the excellence you expect from Buffett? In the large cap space, it becomes tougher to invest in companies, however there are still companies that are growing that will have reasonable returns on dollars invested today. I don't want to muddy the waters too much with specific companies I like, however I will say that there are better options out there. Buffett should consider alternatives particularly in the regulated utility and industrial space where he can earn solid returns on incremental capital. The best opportunities would be utilities where there has been a lack of investment, and he can deploy cash into tax advantaged CapEx, and earn a return on investment, like his investment in Burlington Northern Santa Fe Railroad. One other alternative is to buy back Berkshire stock at a higher threshold than in the past, but where his return on invested capital would be higher than in stocks like AXP or KO. That is a tax efficient way to return capital to shareholders, and is likely better than the returns on the pile of cash and stalled out businesses he currently has.

Amazing that on a board that is devoted to Warren Buffett, people justify holding any random stock with a positive yield because it's bought using someone else's money. Buffett got rich through buying large concentrated positions in undervalued securities using the float. Nonetheless, the underlying investments should be analyzed on merit. I recognize that there is a large deferred tax benefit from owning hugely appreciated positions in AXP and KO, however those investments will not from today perform satisfactorily by any standard measure of investment success. The optimistic scenario is 5% returns for those companies. Is that OK to earn on float in a 0% interest world? Sure, but as interest rates go up, there will be alternative investments--especially investment grade bonds--and I would guess those "blue chip" companies will be revalued to reflect that the equity in no growth companies is riskier than the cash coupons from investment grade bonds.

Not if you are happy owning a company with 0 revenue growth and a 4% return. Not going to get rich owning stocks like AXP. Maybe you stay rich, maybe not. People view AXP as no risk and are valuing the equity like a bond. Well, owning perpetual bonds in a rising interest world is a great way to destroy purchasing power. As interest rates go up, that 4% return looks worse and worse and will be re-priced. If that's your idea of a good investment, then enjoy your returns. I'd rather earn 2% in a savings account than own AXP. It's the opposite of what I want in a stock: limited upside and big downside if the price falls or earnings falter. AXP has been complacent for years because it just kept cashing the checks each month. Now they have a luxury product that is losing appeal and facing increasing competition, at the same time that growth has stalled out for years. Where's the margin of safety? Just that the checks are rolling in each month? I seriously can't believe how many investors are happy with 4%! 4% is a horrible return!

Thanks. As for AXP, KO, WFC, KHC....obviously they are part of the float, however they are priced for perfection. All are slow growth companies with earnings that are tiny relative to their share value. It's tough to see a world where any of those companies can grow a dollar invested today at even 10%, and I would guess most will grow at half that rate, with a risk that the market value reprices the equity as interest rates rise. Without getting into numbers, Kraft Heinz is a dying company with products that are losing market share and even traditional marketplaces to upstart differentiated brands. Sure, they will keep cashing ketchup checks for years to come, but not exactly a business poised to make much incremental money on invested capital. American Express squandered their opportunity to become a truly global brand, and their model is harder to grow than Mastercard or Visa. This isn't exactly like it was 20 years ago when the rest of the world wanted to be like America, and revered the US. With "America" in the name, and losing their panache among younger people, and even facing competition from Chase Sapphire Reserve and other luxury cards, it's hard to see AXP growing like the old days. The business isn't dead--they will keep cashing checks for a long time--but what young person loves their American Express card? They may have lost an entire cohort. Wells Fargo is a fine bank that had poor oversight and used aggressive tactics to expand their relationships with customers. They were caught with their hand in the cookie jar, and have to pay the penalty of not growing via M&A, and reforming the tactics that made them a superior business. That's a bad combination. Coca Cola is a sugar business in a world that may start to face a serious sugar backlash. They may have other products, but Coke only has room to lose market share not gain it. I don't see them having superior power to raise prices significantly (i.e. beyond inflation), and they already sell about as much Coke as will be sold in the world. The equity is priced extremely richly and I expect in the bull case, Coke makes a few % per year for buyers of their stock today. BAC possibly an exception, as they are not restricted to grow like WFC and will start earning materially higher returns on their assets as interest rates rise. Even so, they aren't exactly going to grow the way their share price has grown in the last 10 years post-2008. For the others, the only reason I believe Buffett still owns those companies is A) there is a giant deferred tax liability that will have to be realized if they are sold, and B) there aren't a lot of attractive large cap stocks out there right now, and C) Buffett doesn't care anymore about maximizing returns as his record is basically set. None of those companies would be bought by Buffett today, and certainly not when Buffett actually cared about maximizing returns.

Not sure why there is so much animosity towards FANG stocks. Generally they are companies that are growing fast and taking over from legacy business models. Lower profits today is just tax efficient--growing is faster and more efficient if you pay less tax by recognizing less profit (see: expansion of CapEx of Berkshire's railroads and utilities)....the runrates of those companies are wildly profitable. Not saying they are great value stocks, but I'm shaking my head thinking about people actually thinking that software companies should ever be valued on a price to book basis....book value is meaningless when the assets are code. Anyway, there is no need to rehash the investment thesis of BRK on this board, however currently BRK is trading at a level that makes OK sense relative to the market as a whole. Despite investments in companies with truly egregious valuations (e.g. AXP and KO), the industrial and insurance businesses both look to be positioned well, and at least the $100 billion in cash is earning higher returns as interest rates kick up. I'm not really excited about the stock portfolio: KHC, WFC, AXP, BAC and KO...yikes! Hopefully those will provide a bond-like 3-4% return. WFC has their issues, but with BAC hopefully they do better with higher interest rates and less regulatory burden. Unfortunate that WFC can't grow....that's going to hurt. Could be worse! At least Uncle Warren sold IBM!

Fidelity is quietly just easier and nicer for most investors than Interactive Brokers. International trading (including AIM) is just one plus. I wouldn't say I have complete knowledge on outperformance, however I would focus on these things: 1. Concentration. This is the easiest way to have out-performance or under-performance, simply because it reduces correlation with the index. Also helps because it's very hard for most people to follow a dozen stocks with any type of thoroughness (to say nothing of people with 20+ positions, who basically tie an anchor to their performance. If you have a 5% position double, it's still just a 5% portfolio gain.) I'd shoot for the Buffett goal of 80% across 5 companies, with the remainder in more asymmetric type bets that can still meaningfully impact performance. 2. Focus on small stuff with less eyes on it. Just less competition from serious, professional analysts on small caps and random stuff. Spinoffs, SPAC warrants, IPOs, International, arbitrage of various forms, distressed debt, etc. 3. Forced sellers. Anything where someone has to sell based on non-economic reasons creates opportunity. I would guess most people here don't have the makeup to make high conviction concentrated bets, and thus they will never significantly outperform. I'd bet it's 50/50 that a dart thrower could beat anyone who has max position sizes of 5%....I just don't think it's common for anyone to have 20 ideas that outperform. The winners (of which there will be some) will be hurt by the losers (of which there will be some), and it will take forever to determine if the person has any skill, especially if he or she trims stakes down if they win.