Berkshire and the ten largest S&P Index Companies

[Guest longinvestor]

http://ritholtz.com/2013/02/visual-history-of-the-sp-500/

 

An interesting comment was made by Susan Decker, board member @ BRK during  this

panel discussion.

Susan observed that Berkshire has not invested in the largest components of the S&P index in any decade going back to 1980. WMT is the notable exception. (Buffett has regretted not putting more in it). The investment in IBM, the largest co in 1980 and 1990 only happened recently, when it is not in the top 10. 

 

Given that much of the index returns have come from the top few companies in the index, (Susan Decker points this out), it underscores,

a) just how contrarian Berkshire has been

b) that the index can be beaten by shunning the path the crowd takes. Over the very long term.

 

Also, in 1980, BRK was 80% securities / 20% opcos, today it is 20/80; Certainly not by accident. The rest of the world is learning just how difficult it is to beat the index, Omaha seems to have figured this out a long time ago. 

[Mephistopheles]

Side note they did invest in Apple recently. :)

[Guest longinvestor]

Side note they did invest in Apple recently. :)

 

That's indeed a first for them. Please note that the panel discussion was dated 2014 when they did not own Apple.

 

Avoiding an act of omission?

 

 

[DooDiligence]

Brilliant post!

 

I should know the answer to this since I read all the BRK letters to shareholders but...

 

I'm curious as to whether the Pareto principal applied to the 80 securities / 20 opcos with regards to cash generated (I'm pretty sure that's a yes...)

 

If so, that would seem to be the reason for the reversal to 20/80 (and if it did, is the opco portion still generating 80% of cash?)

 

The nearly irrelevant follow up would be; has WEB beaten Vilfredo Pareto here or by the act of giving away the majority of his wealth to the B & M Gates Foundation? (or both, or neither...)

[John Hjorth]

DooDiligence,

 

It's explained on overall, non technical level in the 2014 "Berkshire - Past, Present and Future" Letter by Mr. Buffett, p.7, under the "stars"-break in the paragraphs about the conglomerate structure of Berkshire.

 

It's about:

 

1. Taxes on dividends from wholly owned subsidiaries compared to taxes on dividends from holding fractions of listed companies in the insurance companies. There are no taxes on dividends from wholly owned subdiaries, while there are taxes on dividends from holding fractions of listed listed companies in the insurance companies, albeit the dividend tax rate on such dividends is lower than general for insurance companies in the US.

 

2. Joint taxation. Each wholly owned Berkshire sub does file its own tax return to the IRS, only one tax return for Berkshire as a whole is filed, for the holding company it self and all the wholly owned subs, where the taxable income is the sum of the taxable income for all those companies. The tax payable is then allocated among all those companies, based on each companys contribution to the aggregate taxable income. For example, that gives BHE an advantage with regard to solar and wind projects while applying maximum taxable depreciations, generating tax losses in the beginning of projects operational phase, with an immediate tax refund after year end on tax losses, while as a stand alone project such project would be left with a tax loss to carry forward to net out in future positive taxable incomes.

 

At some point at the 2015 AGM, Mr. Buffett mentioned that. I don't know the exact time stamp in the video clip on YouTube from the AGM, but it is there.

 

- - - o 0 o - - -

 

Off topic:

 

The only tax regime that I know of [there might be others, though] where it is actually - in reality - possible to avoid paying dividend taxes [there are some requirements for that] on dividends from listed investments is the Swedish, where tax regulations about "investment companies" includes such a set of rules, as mentioned under certain conditions.

 

Examples of such Swedish companies applying that set of rules are:

 

Investor AB

Industrivärden AB

LE Lundbergföretagen AB

Investment AB Öresund

 

- Now back to topic.

[DooDiligence]

Aha (I need to learn more about taxation after I learn more about balance sheet analysis after I learn more about...)