Why did so many smart investors miss making a killing on BRK stock?

[Viking]

Berkshire Hathaway has been one of the great investments of the past 60 years. We all knew Buffett was a genius. The business model was genius (using float from P/C insurance operations as cheap leverage). The company (outside of Buffett) was well managed. So why did so many people not get rich from owning Berkshire stock? What were the main reasons investors missed out on making big money?

 

I have been asking myself this question recently. I have followed Berkshire Hathaway more than most over the past 30 years. i owned shares a number of different times in the past and have done ok with it as a trade. But i missed out on making the big money. I would appreciate hearing what others have to say.
 

Did you nail your investment in Berkshire Hathaway? What enabled this?

Or more likely, did you miss out on making a killing in Berkshire Hathaway? What did you do wrong?

 

My obvious error was not owning a concentrated position and holding for decades. But that explanation doesn’t really explain anything that is useful. I think my big errors were:

1.) not understanding the power of compounding - in a Berkshire Hathaway context. My expectations of the future returns for BRK were much too low (how fast new income streams could be created from retained earnings). This led me to mis-value the stock.
2.) being too much of a market timer / trader - happy to take a quick short term gain.
 

The reason i think about this question so much is I do not want to make the same mistake with Fairfax.

[Charlie]

People have problems to see the obvious. 

 

I would say that is the most important reason, why a lot of people did not invest a lot of money in Berkshire. 

 

People are too overactive, don´t understand compounding, are too overoptimistic in their own (trading) abilities and don´t know their circle of competence. A focused mind lead to a focused portfolio.

There was a study that portfolios of dead people outperformed the portfolio of living people. 

What you don´t do is as important as what you do do. 

Inactivity can be a very smart strategy, like the story of Berty tells us.

Of course you have to be right in the first decision.

 

 

Cheers! 

Edited February 27 by Charlie

[vinod1]

What killing? It barely kept up with S&P 500 over the last 20 years! An index fund is a better holding especially at size for holding periods measured in decades.

 

I sold BRK in 2012 timeframe to buy BAC and other financials and again during Covid to free up cash to buy other things including BRK calls. So I did not make a lot of money in BRK but the alternatives ended up giving higher returns. Definitely paid lot of taxes.

 

With Fairfax, I actually segregated it into accounts where I have long term holdings like index funds. I think selling Fairfax in the next 10 years would be a mistake. Forget about valuation, keep holding it. There are enough good things in the pipeline that positive surprises are likely to outnumber the negatives. If nothing else should give decent results comparable to market. So why mess with that?

 

Of course, this assumes Prem does not again start "Protecting the shareholders from economic headwinds...."

 

 

 

[mattee2264]

Couple of reasons.

 

Firstly, Berkshire isn't promotional. Most big companies will get into bed with investment banking analysts and give them guidance in return for coverage and employ investor relation departments. 

 

Secondly, Berkshire is complex to understand being a conglomerate and an insurance company. Really you are just placing faith in Buffett's ability supported by his team to grow intrinsic value over time. Smart investors aren't usually capable of that leap of faith. They prefer something where they can come up with a complex investment thesis with extensive models and presentations running hundreds of pages. 

 

Thirdly, people hyperfocus on Berkshire's stock picking which has been a bit hit and miss over the last few decades (although Apple demonstrates he can still swing hard at a big pitch) when more of the value comes from the operating businesses and the well-run insurance operations. 

 

Also I think that markets generally have been buoyed over the last few decades by very interventionist monetary policy. Berkshire's business growth especially over a 20 year period has probably been in the top 5% but because it continues to trade around 1.5x book value you aren't getting the multiple expansion you get in other stocks. 

[Intelligent_Investor]

I wasn't alive long enough to take advantage of Berkshire's huge run before the 2000s

[bizaro86]

45 minutes ago, Intelligent_Investor said:

I wasn't alive long enough to take advantage of Berkshire's huge run before the 2000s

 

This. I didn't start investing until late 2008. My results have been better than if I bought and held BRK at that time. That would have probably been lower risk though (and a lot less work). 

[MCR]

My very first "run in" with Berkshire Hathaway was in 1993. I was about to graduate from college. My then girlfriend (now wife) had a family friend, Sam, whose family bought into Berkshire in the early years. Sam's family owned a local bank in a town in Kansas, and he was a cab driver (went to law school, didn't practice law, long story...). We bumped into Sam unexpectedly one day and he was talking about something called "Berkshire Hathway". He was wearing a Berkshire Hathaway hat and talked about going to some meeting. I don't recall if he mentioned Warren Buffett or not. I didn't know what Berkshire Hathaway was and, not wanting to look dumb, I didn't ask any questions. There are many times I mentioned to my wife that I wished asked Sam a simple question ("What is Berkshire Hathaway?") and not worried about looking stupid. Sam was pretty loquacious and I'm sure would have talked with us for over an hour. (Thinking back, this might have been one reason I didn't ask...)

 

I can't remember exactly when we bumped into Sam. A shares in 1993 (no B shares yet) were between about $12K and $17.5K. This was way beyond what I had as a college student (I "owned" debt), and in a pre-Internet age (I didn't have my first email address until Fall 1993) it was not as easy to learn about Berkshire Hathaway let alone Warren Buffett and Charlie Munger. So this is doubtless pure fantasy and wishful thinking on my part that "if only..." It would be another 17 years before I "ran into" Berkshire Hathaway again...by this point those A shares would be worth over $120K. Thankfully there were B shares available by this point in time...

[sleepydragon]

I think I sold 100% of my brk at 2013 to buy my first house. I don’t remember how much I sold. The stock was at $80ish.

fortunately I bought all of them back and owned a lot more in subsequent years when I had more money.

i made tons of mistakes buying all kind of stocks, but everytime I was behind, it’s brk who’s holding me up. 

I have my IRAs (many 401k roll overs) 90% invested in Brk. Recently my broker called me offering private wealth services. I think they called me because my account is up a lot YTD.

 

[alexmiddle]

In 2018, after 10 years of active investing (and a lot of work) and achieving performance roughly equivalent to the performance of the S&P, I made a big bet that both Berkshire and Fairfax were likely to outperform the market in the following 10 years.  I consolidated my portfolio into those 2 stocks and was just willing to let the thesis play out.  So far so good.  Investing is one of those things where increased work intensity does not always equate to better performance.   Even if you have the ability to outperform the market by 1%-2%, is it worth the effort based on how much time it takes you away from your other interests? Even Ed Thorp pulled out and invested in Berkshire. The old saying goes, not everyone can be an Olympic gold medalist, but everyone can try and in investing there are a lot of people who think they are the next gold medalist...

[Williams406]

Bought my first shares of BRK in 1998 after a book club I was in did the Intelligent Investor, introducing me to Graham, Buffett, and Munger, then added a lot during the BRK drop in 1999 and the market drop in early 2000. Really just sat on the shares with small adds periodically until the GFC. I did not feel confident I could put together enough potential 20x'ers that might also go bankrupt to diversify so I loaded up on BRK, ORH common, FFH, and a couple ORH preferreds. Felt like a bunt at the time but all worked out well. Unlike my earlier smaller buys, I put a fair bit of capital in to BRK between $45 and $60 in the spring of 2009 and that decision continues to define my portfolio today. I convinced myself early on that Buffett/Munger were very unique and good and that they had built a magnificent machine that would outlast them. So I bought opportunistically at what proved to be decent times to do so and just didn't sell.

 

With access to almost unlimited sell-side research through work, I did a fair bit of insurance-industry reading and a couple of analysts really did a good job explaining the mechanics of float. Fenimore Asset Management put out some really nice work on Berkshire mid 2000's as well. I read all the old Berkshire annual reports.

 

It is easy to look at a long run of successful compounding like BRK has done and think it should have been easy to ID as great, then buy and hold. But I recall a lot of negative press along the lines of "Buffett has lost it" during the late innings of the tech bubble and the share price suggested that might be true. What am I doing with BRK when I could buy Dell or JDS Uniphase and double my money next quarter? The long run consists of a lot of short runs, not all of which make it easy to sit on one's bum and just not do anything. Another case in point is when BRK got slammed along with everything else during the GFC, Fort Knox balance sheet and the Buffett "imprimatur" notwithstanding. It was not an obvious portfolio "anchor to windward" during that time from purely a stock performance standpoint.

 

As others have mentioned on this thread, understanding float is not common knowledge among most investors. This board is unique that way, but the insurance biz is a weird animal to many investors. Berkshire stock picks get all the press, not sure many investors even know Berkshire is a massive insurance operation, utility, RR, etc.

 

BRK has been good to me, but I often wish one or two sets of grandparents had been well-to-do Omahans who were impressed with "that young Buffett fellow" back in the 50's.

[Jaygo]

I'm 39 now, my first glimpse in to BRK was as a 11 or 12 year old roughly, my Uncle Gerry would wax on about Ted turner and Warren Buffett and all the other big money guys down in America. You want to get rich move to Texas he would always tell me. He was an in demand hot work mason who would travel around North America bricking up active refractories and boilers. 

 

As far as I know he never bought a single share of anything, he was always afraid of the big collapse or the next scam. Anyway Uncle Gerry bought me a book about WB (Buffettology) when I was about 18. A shares were probably in the 50-70k range. I could barely understand it and didn't buy any shares until about 2014. I didn't get rich because I didn't know much then and probably still dont know much now.

 

I, like my Uncle Gerry am always afraid of the next big collapse but to a lesser extent than him so I take profits too early or go to safety and quality when the opposite is probably warranted. 

 

 

 

 

[Eldad]

I bought first shares in 2018 and then bought a bunch during covid. I have done well mostly because of the huge amount I got in the darkest days of 2020. 
 

I have learned everything from WB and Charlie and have an emotional attachment to stock. I also realize that it can no longer be 14-15% of my portfolio if I hope to have 15% + a year returns. So I am currently trying to figure out how to size it. 
 

As far as missing it. People love flash and hate slow and steady. Many people actively root for WB to fail because his timeless wisdom actually irrationally irritates them. Like your dad telling you to finish all your homework right when you get home from school and don’t procrastinate. 

Edited February 27 by Eldad

[thowed]

Some lovely stories here.  Two key takeaways.

 

1) Retail investing was very different pre-internet.  It's been such a seismic change, and more people than not won't remember it.  There was so little information, and so you tended to go for the big, advertised mutual fund.

 

2) A Shares were really expensive for normal people from a certain point.

 

I had some spare time in my studies in 2009/10, and discovered that the Berkshire letters were all on the internet.  I worked my way through them, and learned so much.  However I didn't buy a share for a long time, as back then it was hard to find online brokers in my country (UK) who did US stocks. 

 

And I still worry about what happens after WEB passes.  However much planning you do, succession is incredibly difficult.

 

@Williams406 Particularly enjoyed your story - you really nailed your timings!

 

[ValueArb]

5 hours ago, Intelligent_Investor said:

I wasn't alive long enough to take advantage of Berkshire's huge run before the 2000s

 

This.

 

Anyone could buy Berkshire blindly in the 70s and 80s and do very well. But by the end of the century Buffett's portfolio had grown so large that his edge had declined dramatically. Since 2000 he's trailed the S&P for long periods, and the only way to beat the market significantly owning Berkshire is to buy it very selectively when its trading at a large discount to intrinsic value. 

 

Today if you can't estimate BRK's IV with reasonable confidence, you should just own index funds like Warren tells you to.

[sleepydragon]

Didn’t Buffett say “Buy good companies at fair price “.

brk went up a lot in 2024, it’s near fair value but not over valued. 
I am not selling a single share (and buy any of the other craps I bought in my portfolio:)

[Masterofnone]

In the last 25 years nobody "made a killing" buying Berkshire. But by repeatedly buying when it was cheap it provided a wonderful risk-adjusted return. The down side was always covered, certainly to the detriment of total returns, but that is the price paid for safety. And the surprises will mostly be pleasant ones, likely even when the old fellow dies or passes the reins.

[Xerxes]

I first owned BRK a year or so before Covid, increased to what I could and kept ever since.

 

The pushback that I see from most people I talked to outside this forum vis a vis BRK is that “it is too late” “I can get better return on my own””the chairman is too old, what if”

 

what i alway explain is that they should look at “risk-adjusted return” and not just “return”. Yes Nvidia did a 10x but could/would you put 45% of your entire wealth into it as a non-semi conductor insider. 
 

So if only say 5% goes to Nvidia, what goes to the rest of 40% and is that overall net return enough to match an easier pick like Berkshire with a 45% weighing. 

[dealraker]

So in my investment club which began in 1954 there are of course no original members but I'd guess that all the original guys (it is and has always been all men) owned Berkshire and I know for certain all 25 (it has always been 25 men) current members own Berkshire.  And none trade it.  Most have owned it for 35 plus years, we are an old bunch.  My family (brother and sister) and family business (all my 1st cousins)...everybody individually has owned Berkshire for decades and the business too.

 

Online?  Well, I'm aware of a couple of long term owners but not many.  Most online investors are obsessed with beating Mr. Market while I haven't heard that term from any of my family or anyone in the club.  We do compare ourselves to the market in the club over time and individually but there's no outward effort expressed to beat Mr. Market.

 

I'd say online investors communicate and interact in such a manner that it pretty much mandates an all out effort to outperform the the market constantly.  To me that means when Berkshire, the stock, goes up fast it will be sold by nearly everyone.  

 

Personally my focus is on investing where I think the outcome is better than buying CD's at the bank.  That's an old fashioned thing, the crowd I grew up with pretty much either bought rental real estate of bank CD's, those of us in the investment club were sort of unique in our near 100% allocation to stocks 50 ago...it just never changed for those I have close relationships with.

[Eldad]

27 minutes ago, dealraker said:

So in my investment club which began in 1954 there are of course no original members but I'd guess that all the original guys (it is and has always been all men) owned Berkshire and I know for certain all 25 (it has always been 25 men) current members own Berkshire.  And none trade it.  Most have owned it for 35 plus years, we are an old bunch.  My family (brother and sister) and family business (all my 1st cousins)...everybody individually has owned Berkshire for decades and the business too.

 

Online?  Well, I'm aware of a couple of long term owners but not many.  Most online investors are obsessed with beating Mr. Market while I haven't heard that term from any of my family or anyone in the club.  We do compare ourselves to the market in the club over time and individually but there's no outward effort expressed to beat Mr. Market.

 

I'd say online investors communicate and interact in such a manner that it pretty much mandates an all out effort to outperform the the market constantly.  To me that means when Berkshire, the stock, goes up fast it will be sold by nearly everyone.  

 

Personally my focus is on investing where I think the outcome is better than buying CD's at the bank.  That's an old fashioned thing, the crowd I grew up with pretty much either bought rental real estate of bank CD's, those of us in the investment club were sort of unique in our near 100% allocation to stocks 50 ago...it just never changed for those I have close relationships with.

Good stuff. Thank you

[schin]

23 hours ago, Viking said:

Berkshire Hathaway has been one of the great investments of the past 60 years. We all knew Buffett was a genius. The business model was genius (using float from P/C insurance operations as cheap leverage). The company (outside of Buffett) was well managed. So why did so many people not get rich from owning Berkshire stock? What were the main reasons investors missed out on making big money?

 

I have been asking myself this question recently. I have followed Berkshire Hathaway more than most over the past 30 years. i owned shares a number of different times in the past and have done ok with it as a trade. But i missed out on making the big money. I would appreciate hearing what others have to say.
 

Did you nail your investment in Berkshire Hathaway? What enabled this?

Or more likely, did you miss out on making a killing in Berkshire Hathaway? What did you do wrong?

 

My obvious error was not owning a concentrated position and holding for decades. But that explanation doesn’t really explain anything that is useful. I think my big errors were:

1.) not understanding the power of compounding - in a Berkshire Hathaway context. My expectations of the future returns for BRK were much too low (how fast new income streams could be created from retained earnings). This led me to mis-value the stock.
2.) being too much of a market timer / trader - happy to take a quick short term gain.
 

The reason i think about this question so much is I do not want to make the same mistake with Fairfax.

 

I think the disrupting the compounding is a huge dagger. I do not know of many people who have kept 1-2 holdings static for 10+ years and allow Amazon, Google, BRK to compound for years on years.  

 

I have 1 share of BRK.B to get his annual letters sent to me. But, I remember back when BRK.B were introduced he specifically said he didn't believe they were a good value. Warren talked it down. Also, through the years, he talked about how his universe has shrunk and he would marginally outperform the S&P, if he was lucky.

 

He's results have been good, but not great. I would love to have the early Buffett partnership returns.. but, the last 10-20 years have been good, but not great.. but, again, if you invested him in the 70s or 80s... it's been 30-40 years of compounding by him.. that's not something most people do nowadays.

 

I would love to see a poll of everyone's longest held position... But, the average is probably 1-2 years, if I tender a guess.

[jbwent63]

My first purchase of BH was when the B shares were introduced at 30-1. Using tax advantaged (RRSP) accounts, I purchased 15 B shares. After the 50-1 (BNSF) split I added a few more shares in one of the significant dips and have never sold a share. I have written covered calls against a part of my position a couple of times (including a failed attempt late last week). I understand the comments that holding an S&P index fund would have done as well (although probably not in my case given the time I invested) but I own BH as a hedge against the craziness of the general stock markets. I am convinced that in a draw down of markets (it has and will happen again) BH will significantly outperform. So in that sense it is my insurance policy (instead of S&P 500 puts perhaps). Folks will always need insurance. The fortress balance sheet (sorry, Mr. Dimen) adds further protection.

 

I haven't owned FFH for as long, and it isn't as large a position, but it is large enough. Having lived through the lean years of the late 2010's and not sold any shares I am hopeful that Mr. Watsa's current strategy will provide more protection in a down draft.

[Gmthebeau]

23 hours ago, vinod1 said:

What killing? It barely kept up with S&P 500 over the last 20 years! An index fund is a better holding especially at size for holding periods measured in decades.

 

I sold BRK in 2012 timeframe to buy BAC and other financials and again during Covid to free up cash to buy other things including BRK calls. So I did not make a lot of money in BRK but the alternatives ended up giving higher returns. Definitely paid lot of taxes.

 

With Fairfax, I actually segregated it into accounts where I have long term holdings like index funds. I think selling Fairfax in the next 10 years would be a mistake. Forget about valuation, keep holding it. There are enough good things in the pipeline that positive surprises are likely to outnumber the negatives. If nothing else should give decent results comparable to market. So why mess with that?

 

Of course, this assumes Prem does not again start "Protecting the shareholders from economic headwinds...."

 

 

 

 

I was wondering same thing, killing?  I guess if you go back to the start of it when most investors today were in pre-school or not born yet.   It is basically just a closet index fund now and has been for a couple of decades.

[gfp]

7 minutes ago, Gmthebeau said:

 

I was wondering same thing, killing?  I guess if you go back to the start of it when most investors today were in pre-school or not born yet.   It is basically just a closet index fund now and has been for a couple of decades.

 

I don't know when you were in pre-school but the Berkshire shares I manage have almost exactly doubled the total return of the S&P500 with dividends included since 2001 which is when I bought them (I was not a big trader in pre-school so this was after my schooling was complete).  And over that entire period, unlike the index, the shares were rarely over-valued or worrying.

[thepupil]

I've owned some berkshire for the entirety of my investing life. I'm not THAT much wealthier for it relative to S&P, and I'm definitely poorer for it relative to QQQ or FAANG/MAG7or friends who just bought apple / MSFT / google and held (who knew nothing about stocks, but said "google/apple go up"). 

 

more generally, if my dad/grandparent are representative of mass affluent, people who have been investing since 1950's in case of my late grandpa and 1980's in case of my dad. most normal investor people wither just buy hold household name divvy stocks (at least that's what my grandpa did) or just invest in what their broker put them in (american funds which earned marked +-1% - 1% ish fee)

 

Buffett was pretty niche stuff for a long time.

 

I think investment in berkshire is a very reasonable way to preserve and grow purchasing power. I'm at my lowest Berkshire weighting of the last 13 or so years save a brief moment where I owned none. My IRR on berkshire (while I've not explicitly calculated) likely exceeds 15% and I've generally been able to buy / sell at good times having come to know it decently well. With that said, the rewards for picking the absolute best companies of the last decade or two have far exceeded investment in Berkshire. I don't really consider myself capable of doing that, so I'll likely continue to hold, at least some Berkshire for a while. 

[Gmthebeau]

7 minutes ago, gfp said:

 

I don't know when you were in pre-school but the Berkshire shares I manage have almost exactly doubled the total return of the S&P500 with dividends included since 2001 which is when I bought them (I was not a big trader in pre-school so this was after my schooling was complete).  And over that entire period, unlike the index, the shares were rarely over-valued or worrying.

not a killing by any measure, but yea its low risk