Why Bother Diversifying, Just Buy Berkshire Hathaway

[fareastwarriors]

Why Bother Diversifying, Just Buy Berkshire Hathaway

 

 

http://seekingalpha.com/article/1945621-why-bother-diversifying-just-buy-berkshire-hathaway

 

 

 

The Super Investors Of Graham And Doddsville

http://seekingalpha.com/article/1947841-the-super-investors-of-graham-and-doddsville

[randomep]

Well, I think the author is writing one of those article that doesn't have a ton of content. I think majority of people on this board knows Brk record. Remember at 1999 (which is where they start tracking performance) Brk was going into multi-year lows and S&P was going into all-time highs. So the period can be said to be an unfair sample.

 

Buying Brk to me is a matter of your objective. Yes if you want to track S&P500 then ya you can either buy vanguard index or Brk, I don't think it makes much difference considering that Brk is now 280Bil company. But if you want to beat the S&P 500 by for example getting out of large caps and into small caps then Brk is not the way to go. When Brk gets bigger and bigger the companies they buy get bigger and bigger. So you are going to start tracking S&P 500.

[original mungerville]

BRK will outperform the S&P 500 for the next 10 years in my view - its hard for BRK to not return 7-11 percent annually on average, whereas the S&P will do worse in the coming decade given the current price level.

 

Good investors in small caps, however, can do better - like many people on this board. Also, knowledgeable BRK investors can pick their spots with BRK buying it cheap and selling it when it is more expensive. For example, in the last 14 years or so, I have purchased BRK 4 times making no less than 20-25% annualized while I held it - usually for 18 to 24 months or so.

[Guest longinvestor]

OK, since there is a lot of prognostication about the future of BRK's return versus the index return etc., I would like to start tracking this on this board at the beginning of each year. I would also like to include the "COBF Fund" in the comparison. The good ol' "$10000 invested in...." is used.

 

I do need some help from folks who do this kind of thing to give me a value for the COBFF on January 2, 2014 (and in the years following).  I prepared a spreadsheet with the Jan 2, 14 prices of the stocks included etc. (Shown further below). Who can do this in a simple way that takes dividends into account  taxes, fees? Come up with a NAV? I don't know how that is done. Any takers?

 

      VFINX                                     BRK-B                   CoBFF

          Price    #Shares Value    Price    #Shares Value      Price   #Shares   Value

2-Jan-14 $168.58 59.3 $10,000.00 $117.50 85.1     $10,000.00                   $10000

2-Jan-15

2-Jan-16

2-Jan-17

2-Jan-18

2-Jan-19

2-Jan-20

2-Jan-21

2-Jan-22

2-Jan-23

2-Jan-24

 

 

COBFF Price Allocation Prop of 10k # shares

BAC $16.1 16.7% $1,670.00 103.7

FIATY $9.6 13.4% $1,340.00 140.3

CASH $1.0 9.5% $950.00 950.0

AIG $50.7 8.6% $860.00 17.0

SHLD $47.1 8.1% $810.00 17.2

ALS.TO $12.6 7.1% $710.00 56.3

GNCMA $11.2 5.8% $580.00 51.8

BRK-B $117.5 5.0% $500.00 4.3

IBM $185.5 4.4% $440.00 2.4

GM $41.0 4.2% $420.00 10.3

C $52.3 3.8% $380.00 7.3

LUKOY $62.1 3.7% $370.00 6.0

INLOT.AT $2.0 3.3% $330.00 169.2

LRE.L $805.5 3.3% $330.00 0.4

WFC $45.0 3.1% $310.00 6.9

 

 

 

[no_free_lunch]

in the last 14 years or so, I have purchased BRK 4 times making no less than 20-25% annualized while I held it

 

So,are you holding BRK right now?

[jay21]

Well, I think the author is writing one of those article that doesn't have a ton of content. I think majority of people on this board knows Brk record. Remember at 1999 (which is where they start tracking performance) Brk was going into multi-year lows and S&P was going into all-time highs. So the period can be said to be an unfair sample.

 

It would be unfair to the index funds right?  Because they started at a much higher valuation than BRK relative to today?

 

http://www.multpl.com/table

 

S&P PE ratio was ~30 in 1999.  It is now 19.6.  So the returns have to fight that multiple contraction.

 

This was interesting imo.

[thepupil]

Well, I think the author is writing one of those article that doesn't have a ton of content. I think majority of people on this board knows Brk record. Remember at 1999 (which is where they start tracking performance) Brk was going into multi-year lows and S&P was going into all-time highs. So the period can be said to be an unfair sample.

 

It would be unfair to the index funds right?  Because they started at a much higher valuation than BRK relative to today?

 

http://www.multpl.com/table

 

S&P PE ratio was ~30 in 1999.  It is now 19.6.  So the returns have to fight that multiple contraction.

 

This was interesting imo.

 

One could argue that it would be more unfair to Berkshire Hathaway. This is pre Mid-American, Marmon, and BNSF, when Berkshire was much more dependent upon insurance leverage of its equity holdings. By trading at a much higher multiple of book (which was comprised of very expensive stocks) Berkshire has had to fight the multiple contraction doubly. Here's an article from 1997 explaining the phenomenon of the "double premium"

 

http://money.cnn.com/magazines/moneymag/moneymag_archive/1997/12/01/234603/index.htm

 

Although purchasing Berkshire gives you the world's best investor and a portfolio of great companies, many of those firms are overpriced and you're paying extra for the privilege of buying them.

 

Using the May 2013 Tilson presentation for a quick look, Berkshire's per share pre-tax earnings were a mere $918.66 in 2000.

 

Now you could argue my point is moot because Buffett should have perhaps sold Coca Cola at 50X PE or whatever, but I think Buffett did effectively do that by buying a boring utility that year. He diluted his positions in high fliers like KO and DIS and such with his purchase of MidAmerican.

 

Maybe I'm being too kind too Buffett. But the underperformance of his shares from one day 15 years ago to today or 5 years ago to today does not make me question his record. The outperformance in all 5 year rolling periods except the last one and the tremendous growth in earnings power are more fitting testaments of his record.

[Ross812]

Sorry longinvestor,

 

I don't have the value of the COBFF for 2-Jan-2015. The fund has tracked the S&P within about 20 bps while the market was really hot so I would take the performance of the S&P from 8/19/13 to Jan 2 and use that to peg the COBFF for this first period, or just start tracking them 17-Jan-15... The fund so far seems like it holds up well during downturns and lags a little when the market is going up. I like your idea, and I really should be tracking the COBFF return for each quarter.

 

 

[original mungerville]

in the last 14 years or so, I have purchased BRK 4 times making no less than 20-25% annualized while I held it

 

So,are you holding BRK right now?

 

No, I'm not in BRK. I would say its not expensive but not super cheap either. Given corporate profits are at all time highs, it may be slightly more expensive that it looks. In any case, its somewhere in the middle now which should produce returns of 7-11 percent over the next decade. This assumes the Fed can maintain price stability (ie that we don't have deflation or hyperinflation) - I am talking about returns in some sort of reasonably stable monetary environment. It will surely beat the S&P from these levels in my view.

 

 

[Guest longinvestor]

Sorry longinvestor,

 

I don't have the value of the COBFF for 2-Jan-2015. The fund has tracked the S&P within about 20 bps while the market was really hot so I would take the performance of the S&P from 8/19/13 to Jan 2 and use that to peg the COBFF for this first period, or just start tracking them 17-Jan-15... The fund so far seems like it holds up well during downturns and lags a little when the market is going up. I like your idea, and I really should be tracking the COBFF return for each quarter.

 

 

I don't think I understand what you mean by "peg" the COBFF. You have to explain that to me.

 

Here is what I had in mind with the comparison:

1) $ 10,000 invested as the starting amount in the Vanguard Index, BRK-B and the COBFF.

2) VI and BRK-B have a price, so it is straightforward to enter that in my spreadsheet. For the COBFF, I'm assuming that I will buy each of the holdings proportionally as the weights are published by you. First buy happened on Jan 2, 2014.

 

I would like to maintain this spreadsheet. If it is possible to share this file on COBF website, that would be lovely, but no sweat if not feasible.

Assumptions

$9 trading cost per transaction; 2% annual fee for managing the fund; Fractional shares are OK.

When the COBFF gets rebalanced, will update the portfolio with trading costs, Short term/long term capital gains.

Dividends go to cash balance and reconciled when COBFF is rebalanced.

No further inflows of capital.

 

Would you be able to let me know if you eliminate, trim, add positions to COBFF. Do you plan to do that once a qtr or continuously? I would have to know each transaction to capture costs correctly.

 

Is this OK? Can we work together to post progress, I'd like to do this no more than once a year, always on January 2. The only number that matters is the $10000 and what it is every January 2nd.

 

 

 

 

 

[james22]

2% annual fee for managing the fund

 

:o

[Guest longinvestor]

We will soon find out what BV was at the end of 13. At today's PPS, we are likely within earshot of 1.2xBV. Hope the market cooperates for a few months or another billionaire shareholder or two need to sell their BRK shares to complete their estate plans and the new floor becomes 1.3x ;)