BRK vs S&P 500 Two Years After S&P Beats BRK by More Than 11%

[twacowfca]

        BRK Price  S & P 500

                            Plus Div

    % Change % Change

 

1975   -5.0%    37.2%

1976 147.4%    23.6%

1977  46.8%   -7.4%

 

 

1996    6.2%   23.0%

1997  34.9%   33.4%

1998  52.2%   28.6%

 

 

1999 -19.9%   21.0%

2000  26.6%    -9.1%

2001    6.5%     -11.9%

 

 

2009    2.7%   26.5%

2010         ?         ?

2011         ?         ?

 

[Munger_Disciple]

The S&P 500 total return in 2009 is 26.5%, not 23.5%.

[twacowfca]

The S&P 500 total return in 2009 is 26.5%, not 23.5%.

 

 

Oops! My bad. Will fix. Thanks.

[shalab]

The table is interesting. Insurance sector as a whole is undervalued but as Sanjeev mentioned, the sector carries with it some risk. The interesting thing with BRK is that it hasn't recovered with other stocks such as WSC or FFH.

 

 

[twacowfca]

        BRK Price  S & P 500

                            Plus Div

    % Change % Change

 

1975   -5.0%    37.2%

1976 147.4%    23.6%

1977  46.8%   -7.4%

 

 

1996    6.2%   23.0%

1997  34.9%   33.4%

1998  52.2%   28.6%

 

 

1999 -19.9%   21.0%

2000  26.6%    -9.1%

2001    6.5%     -11.9%

 

 

2009    2.7%   26.5%

2010         ?         ?

2011         ?         ?

 

 

 

2010, noon.  BRK YTD. + 8.8%  S&P500 YTD + .5%

Jan. 21

 

Closing the gap. :)  ( By the way, the gap is VERY large if you compare BRK's BV to S&P500 BV :)

 

When BRK joins the S&P500 in a few months, is there any good reason why a superior Co like BRK should not sell for a PR/BV multiple that is at least equal to the index?

[ERICOPOLY]

When BRK joins the S&P500 in a few months, is there any good reason why a superior Co like BRK should not sell for a PR/BV multiple that is at least equal to the index?

 

 

The full price paid for BNI will be carried on the books, even though it represents a multiple-to-book of BNI's underlying assets.

 

In theory, if Berkshire only held KO and nothing else, Berkshire should trade at book value even though KO trades at a huge multiple of book.

 

 

[twacowfca]

When BRK joins the S&P500 in a few months, is there any good reason why a superior Co like BRK should not sell for a PR/BV multiple that is at least equal to the index?

 

 

The full price paid for BNI will be carried on the books, even though it represents a multiple-to-book of BNI's underlying assets.

 

In theory, if Berkshire only held KO and nothing else, Berkshire should trade at book value even though KO trades at a huge multiple of book.

 

 

 

 

Excellent point, Eric.  The publicly traded Cos that BRK owns are already trading at multiples to book before they are marked to market.  On the other hand most of BRK's wholly owned Cos are carried way below any rational private market value which would be way over tangible book.  Also the cyclical Cos BRK owns will surely have a greatly increased value as the economy turns up.  ( think BNI's sensible scenario of doubling earnings over the next four years)

 

Let's assume that the public Cos that BRK owns are fairly valued compared to the rest of the S&P ( although they are on average superior).  Can we assume that the rest of BRK should command a substantial multiple to BRK' carrying value for them if those businesses were part of the S&P?  If so what would the increased multiple be?

 

[ERICOPOLY]

When BRK joins the S&P500 in a few months, is there any good reason why a superior Co like BRK should not sell for a PR/BV multiple that is at least equal to the index?

 

 

The full price paid for BNI will be carried on the books, even though it represents a multiple-to-book of BNI's underlying assets.

 

In theory, if Berkshire only held KO and nothing else, Berkshire should trade at book value even though KO trades at a huge multiple of book.

 

 

 

 

Excellent point, Eric.  The publicly traded Cos that BRK owns are already trading at multiples to book before they are marked to market.  On the other hand most of BRK's wholly owned Cos are carried way below any rational private market value which would be way over tangible book.  Also the cyclical Cos BRK owns will surely have a greatly increased value as the economy turns up.  ( think BNI's sensible senario to double earnings over the next four years)

 

Let's assume that the public Cos that BRK owns are fairly valued compared to the rest of the S&P ( although they are on average superior).  Can we assume that the rest of BRK should command a substantial multiple to BRK' carrying value for them if those businesses were part of the S&P?  If so what would the increased multiple be?

 

 

 

I bought 2 class A shares last week and I must say I like the instant gratification of the recent share pop. 

 

I have trouble when the S&P500 tanks 50% because a lot because people invariably say... "hey look, Berkshire's book value only declined by half as much as the S&P500".  Partly this is skill, but partly it's just plainly obvious that while the S&P500 index is marked to market, the value on Berkshire's books of the wholly owned subsidiaries is not.  So Berkshire in theory ought to have a lot less volatility in book value vs the S&P500.  Anyways, during periods when the S&P500 goes up steeply Berkshire's book value will likewise have a difficult time keeping up.

[goldfinger]

Isn't it the role of the markets to anticipate?

[shalab]

I think the book value is no longer a good indicator of value of berkshire. The two column method is a better indicator as it is indicated by Buffett himself. The two column method is "investments per share" + earnings * a reasonable multiple".

 

This approach is especially relevant if the BNI deal goes through.

 

cheers!

shalab

[twacowfca]

The unstated point of my recent post is this:  the proper concern of BRK shareholders has been a rational estimation of intrinsic value.  During the era of WEB's stewardship, the market has, however, IRRATIONALLY priced BRK at  a substantial discount to the inferior avg S&P co.  During its glory years BRK was sometimes priced as low as HALF BV!  In a few months, when BRK will almost certainly become part of the S&P500,  what seemingly rational ( by benchmarking reference ) comparison will Mr. Market use to price BRK ?  Will it still sell at a large discount to the avg S&P co?  What rational(?) mechanism will Mr. Market use to line up BRK with other large cos in the index?  Will it be as a growth Co?  It's growth in earnings from it's wholly owned Cos has been phenomenal.  Would Mr Market do such a thing for such a large Co?  If not by that mechanism, by what?  

 

Any ideas?

[twacowfca]

        BRK Price  S & P 500

                            Plus Div

    % Change % Change

 

1975   -5.0%    37.2%

1976 147.4%    23.6%

1977  46.8%   -7.4%

 

 

1996    6.2%   23.0%

1997  34.9%   33.4%

1998  52.2%   28.6%

 

 

1999 -19.9%   21.0%

2000  26.6%    -9.1%

2001    6.5%     -11.9%

 

 

2009    2.7%   26.5%

2010         ?         ?

2011         ?         ?

 

 

 

In 2010 thru March, 5, BRK has advanced @ 27% VS 2% for S&P500. :)  Interestingly, since the split and announcement of S&P admission, BRK has outpaced the advance of the S&P500 by 3:1.  Is there any reason to believe that the advance, relative to the S&P will not continue until BRK no longer sells at a discount to its new peers?

[shalab]

I am thinking BRK should be doing better in the next couple of years as the 20+ billion dollars put into work bears fruit. The GS, Mars, GE, Swiss Re, CEG investments returned 40%+ including dividends - a pretty good return rate for such large sum of money. If you look at FFH portfolio BRK owns a larger chunk of the same businesses - JNJ, WFC, USB and KFT.  Also, the BNI earnings should get better this year compared to last. Given all the subsidiaries are depressed, it should only get better.

 

 

[DCG]

I am thinking BRK should be doing better in the next couple of years as the 20+ billion dollars put into work bears fruit. The GS, Mars, GE, Swiss Re, CEG investments returned 40%+ including dividends - a pretty good return rate for such large sum of money. If you look at FFH portfolio BRK owns a larger chunk of the same businesses - JNJ, WFC, USB and KFT.  Also, the BNI earnings should get better this year compared to last. Given all the subsidiaries are depressed, it should only get better.

 

Berkshire is tied pretty heavily to the housing market though, and I think it's going to take at least a couple years for the housing & construction markets (especially for new builds) to really start to bounce back. I expect companies like Acme, Benjamin Moore, Clayton Homes, Shaw, Johns Manville, etc to weigh on Berkshire's earnings for a while. I hope I'm wrong though.