Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

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uberational44
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Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by uberational44 » Sun Mar 04, 2018 5:02 pm

It would be far more tax efficient to hold the stocks as the dividends would be taxed differently...

Obviously, you are be taking a punt that the company will survive after he departs, but the man has had so long to cement it's future that it is sbound to do well even when he's gone...
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Sandtrap » Sun Mar 04, 2018 5:06 pm

I have a few folks I know that do. But they have healthy pensions and good alternate retirement income streams.
Given the "forum" is named after "Jack Bogle", founder of Vanguard (index fund giant), I doubt there are many, if any, here that would even consider Berkshire, or any single stock as a "replacement for" low cost index funds.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by drk » Sun Mar 04, 2018 5:32 pm

uberational44 wrote:
Sun Mar 04, 2018 5:02 pm
It would be far more tax efficient to hold the stocks as the dividends would be taxed differently...

Obviously, you are be taking a punt that the company will survive after he departs, but the man has had so long to cement it's future that it is sbound to do well even when he's gone...
Just for comparison, in 2017 the Vanguard S&P 500 ETF had an SEC yield of 1.87% and 100% qualified dividends. Supposing someone had $1m invested in VOO and in BRK.B, the difference would have been $18,700 of dividend income taxed at their long-term capital gains rate. That would make a large difference if someone:
  1. is in the top tax bracket but plans to be in a lower tax bracket in retirement
  2. pays LTCG taxes now but plans to be in the lowest tax brackets in retirement
  3. expects to see long-term capital gains rates decrease in the future
I would consider (1) and (2) to be reasonable plans. In combination with an expectation that Berkshire Hathaway will continue to outperform its S&P 500 peers by at least the S&P 500's dividend rate, I become skeptical about them. I'm personally not willing to make that bet in order to save 0.2805% annually.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by jminv » Sun Mar 04, 2018 5:44 pm

I don't because of Buffett, as he says, being nearly fully depreciated. I don't trust the post-Buffett era to have the same performance.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by iceport » Sun Mar 04, 2018 5:45 pm

uberational44,

You might be interested in Jason Zweig's latest column, appearing in this weekend's WSJ. See lower left corner of B1, and middle of B4:

http://online.wsj.com/public/resources/ ... 180303.pdf

http://online.wsj.com/public/resources/ ... 180303.pdf
Over the 10 years ended last year, Berkshire Hatha-way returned an average of 7.7% annually. The S&P 500 returned 8.5%, including div-idends. For decades, Mr. Buffett has been warning that size is the enemy of excellence for any investor and that Berk-shire’s future performance was bound to decline. Could he finally be turn-ing out to be right? Is Berk-shire, at a total market value of $500 billion, getting too big to beat the market?
"Discipline matters more than allocation.” ─William Bernstein

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by 123 » Sun Mar 04, 2018 5:46 pm

We held some BRK.B in an IRA until late last year. We held it for a number of years and sold it to simplify that IRA to a LifeStrategy "fund-of-funds" fund. We had just treated it as an alternative equity fund investment. We liked the feeling of being part of the "Berkshire Club", it added a little spice to a pretty dry 3-Fund portfolio. Because of it's dividend posture I think it would be fine in a taxable account, though undoubtedly (unknown) changes will occur when Warren isn't around anymore.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by AndrewXnn » Sun Mar 04, 2018 6:04 pm

Not instead, but yes I own BRK individually as well as a component of my S&P 500 index fund.
So, I have an over weight position in BRK relative to my core holding of the S&P 500.

Notice that Warren Buffett speaks highly of the S&P 500.
He put it forth as his pick in his big bet a decade ago.
You can read about the big bet in the annual report.

Also, notice that Buffett does not currently recommend buying BRK.
It has to be at the right price to be a buy.

BRK is currently holding over $100 Billion in cash equivalents and having difficulty figuring out what to do with it.
It will not buy it's own shares back at current prices.
So, no share buy backs in the near future.
The current market is not offering up many good deals either.

Anyhow, have enjoyed huge tax free gains with BRK.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by AndrewXnn » Sun Mar 04, 2018 6:11 pm

Also, talk about cherry picking past results to make an misleading point.

True; over the last 10 years, the S&P outperformed BRK 8.5% vs 7.7%.

However, over the last 11 years, BRK outperformed the S&P 9.5% vs 8.2%.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by nisiprius » Sun Mar 04, 2018 6:15 pm

Many people in this forum do invest in Berkshire Hathaway stock (BRK.B).

1) In his 2016 letter to shareholders, Warren Buffett wrote:
Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund.
He's been consistent about that, has recommended index funds many times. We may speculate on why he has consistently recommended "a low-cost S&P 500 index fund" rather than Berkshire Hathaway stock or other possibilities, but the fact remains an S&P 500 index fund is what Warren Buffett has recommended. If you trust Warren Buffett's wisdom, why not follow his recommendation?

2) BRK.B is a single stock. It may be less volatile than some other stocks. It is still a single stock. It is hard to see anything you could say about Berkshire Hathaway that wasn't being said about GE--younger investors probably would not believe just how highly and universally admired and praised GE was.

3) BRK.B is not a mutual fund, and it is not "like" a mutual fund. A sane person might decide to cast their fate with Berkshire Hathaway instead of an index fund, but it does not meet the rules and regulations a mutual fund must meet. BRK.B may seem diversified compared to the stocks of some other companies, but It would not quality as a "diversified mutual fund" because it is too concentrated in some stocks, and because it owns too much of the outstanding stock of some companies. It's hard to say whether it meets the requirements on limits to leverage, it probably does technically, but it probably is using more leverage than mutual funds would be allowed to use. It probably doesn't meet the custodial and reporting requirements (arms-length between the firm managing assets and the independent custodial bank that actually holds them). You may say "none of this bothers me because I trust the management of Berkshire Hathaway." But it's not a mutual fund and doesn't have the protections given by the Investment Company Act of 1940.

4) Everything depends on the starting point, but it is nevertheless relevant that over the last ten years, BRK.B stock (orange) has not been terribly different, and certainly not dramatically better, than the Vanguard Total Stock Market Index Fund (blue) (or the Vanguard 500 Index fund Buffett mentions, VFINX, green). The "past performance" disclaimer works both ways, of course; the fact that BRK didn't outperform an index fund doesn't mean it might not outperform it in the future.

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P.S. I wrote that before reading AndrewXnn's point. He's correct. The issue with any such comparison is that because of the relative volatility of BRK compared to the S&P 500, shifting the starting point small amounts often makes big differences in the relative results. It's hard to say what would be a "neutral, objective" starting point that takes into account the fact that the huge Berkshire Hathaway of today is not similar to and will not behave the same way as the Berkshire Hathaway of decades ago. The "round number" 1/1/2000 might be less objectionable than "the last ten years;" the results of starting at 1/1/2000 instead of 3/4/2008 are not very different.
Last edited by nisiprius on Sun Mar 04, 2018 6:26 pm, edited 3 times in total.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Sun Mar 04, 2018 6:17 pm

I own BRK.B in my taxable account in addition to us, intl, and emg etfs. I count it as part of my US allocation with respect to US-Intl split.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Sun Mar 04, 2018 6:21 pm

AndrewXnn wrote:
Sun Mar 04, 2018 6:04 pm
Also, notice that Buffett does not currently recommend buying BRK.
It has to be at the right price to be a buy.

BRK is currently holding over $100 Billion in cash equivalents and having difficulty figuring out what to do with it.
Can you cite where he said this/it was written. I don't think WB would ever say not to invest in berkshire.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by AndrewXnn » Sun Mar 04, 2018 6:53 pm

bgf;

On page 6 of his 2011 Letter to Shareholders, Buffett set a share repurchase limit of 110% of book value.

http://www.berkshirehathaway.com/letters/letters.html


BRK is currently trading near 143% of book.
So, no repurchases are on the near term horizon.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Helo80 » Sun Mar 04, 2018 6:57 pm

I view Berkshire as basically an "index fund", even though it does not technically fit the definition. Also, I do like how Buffett speaks so highly of S&P500 Index funds. I take it Berkshire has done so extraordinarily well that even Buffett is surprised, and at this point in his life, he'd rather give good advice that continue to dominate and grow his power and holdings. For example, you really do not see the FAANGs out there giving investing advice (though, it's a tough comparison as they are technology and not financial investors).

I read an article years and years ago, I think in 2007/2008 before the financial meltdown that when Google went public, Google brought in some financial advisers for their employees as it was generally known that many, especially the long-timers would be millionaires overnight. It was a very long article and basically summed up that the financial advisers told them the best thing to do with their instant riches was to do broad market index fund investments with low fees.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by david1082b » Sun Mar 04, 2018 7:12 pm

This kind of thread is very common. One of the earliest ones I could find was from April 2009. As you'd expect, that thread went pretty much in favour of indexing. There was this exchange there:
tibbitts wrote:
Sun Apr 12, 2009 4:38 pm
freedomfunds wrote:I sense a bit jealousy from some indexers since Buffett has cleaned their clocks.

Don't try to beat em, join em.
Would you say the same about buying GE, since it outperformed the index for so many years?
viewtopic.php?t=36079#p449641

In light of the continuing GE troubles, that exchange looks even more pertinent. There was also a similar thread from October 2007 that linked to a Reuters article from May 2007:
Warren Buffett said on Sunday most investors are better off putting their money in low-cost index funds, though he believes he can still outperform major market indexes.

“A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,” Buffett said at a press conference

“Successful funds attract a massive amount of money, and the later performance typically gets mediocre,” he said.“Then they keep publishing returns for the whole period for someone who started 20 years ago.... The reporting has falsehood and folly in it.”
https://www.reuters.com/article/berkshi ... 9820070507 viewtopic.php?t=7366

To be frank, I think that Berkshire Hathaway engages in a similar tactic at the beginning of its shareholder letters, giving returns for BRK from 1965 to now versus the S&P 500, showing it to have 20% a year compounded versus the S&P's 10% http://www.berkshirehathaway.com/letters/2017ltr.pdf

The fact is that recent returns for BRK have been much closer to the S&P than from 1965 to now, so is there really any point in giving returns from 1965 to now versus S&P 500? Still, WB acknowledged that 20% a year is not realistic:
As for Berkshire, which ended March [2007] with nearly $90 billion of stock and fixed-income investments, Buffett said “we think we can do better than the S&P. I would be disappointed if our portfolio didn’t do a couple of percentage points better. I would be amazed if it did (much) better.
This is pretty much what happened from the article's publishing date until now: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by whodidntante » Sun Mar 04, 2018 7:22 pm

Someone does. I don't. Here's a couple of reasons why.

1) Buffett and Munger have shown that they can apply their investing style even when it's unpopular for many years. Buffett received substantial negative press during the tech bubble, for example. There is no guarantee this resiliency in investment style will be continued by the next leaders of the company. New strategies, even if they are sound, will cause volatility as investors decide if they want to be on the bus or not.

2) The price of Berkshire is decoupled from the marked to market price of their cumulative assets, unlike a mutual fund. You have full-on single stock risk, and your preference to think of Berkshire as a mutual fund will not protect you in any way.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Dominic » Sun Mar 04, 2018 7:26 pm

As a replacement, never. As a supplemental investment, as a small fraction of a portfolio, it's not terrible. It does pretty well, it's diversified in terms of sector composition, and I would hope that the market has priced in that Buffet won't be CEO forever.

That said, GE was a pretty high-powered conglomerate for decades, and look what happened. What's that saying about eggs in baskets again?

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Big Dog » Sun Mar 04, 2018 7:30 pm

one of my first investments: $5750. Almost turned it into kid's college tuition but have kept it awaiting for one of us to die so we'll get the stepped-up basis.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Sun Mar 04, 2018 7:34 pm

AndrewXnn wrote:
Sun Mar 04, 2018 6:53 pm
bgf;

On page 6 of his 2011 Letter to Shareholders, Buffett set a share repurchase limit of 110% of book value.

http://www.berkshirehathaway.com/letters/letters.html


BRK is currently trading near 143% of book.
So, no repurchases are on the near term horizon.
Its actually 1.2x book value and he's hinted at increasing that threshold as intrinisc value continues to divert from book value.

His threshold for share buybacks is not the same as instructing other investors not to purchase berkshire stock as an investment.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by pollifax » Sun Mar 04, 2018 7:45 pm

No. We own VFIAX, which does own shares of Brk.B, though. :happy

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by nisiprius » Sun Mar 04, 2018 7:46 pm

(I'm blanking my post, here, for reasons pointed out by helo80, below).
Last edited by nisiprius on Sun Mar 04, 2018 9:19 pm, edited 3 times in total.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by folkher0 » Sun Mar 04, 2018 8:06 pm

Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition. Also, I do like how Buffett speaks so highly of S&P500 Index funds. I take it Berkshire has done so extraordinarily well that even Buffett is surprised, and at this point in his life, he'd rather give good advice that continue to dominate and grow his power and holdings. For example, you really do not see the FAANGs out there giving investing advice (though, it's a tough comparison as they are technology and not financial investor...
Two problems with Berkshire as an index that I see:

1. So much of the value of the stock is tied into the cult of buffet. It won't look like an index after he's gone.

2. What if there is some scandal, bad press, dodgy activity comes to light about Berkshire? The whole thing would plummet. I don't expect anything like that but that's the whole point.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Helo80 » Sun Mar 04, 2018 8:21 pm

nisiprius wrote:
Sun Mar 04, 2018 7:46 pm
Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition.
It's not a technicality. It's not close to being a diversified mutual fund. It's even farther away from being an index fund.

To view Berkshire Hathaway as "basically an index fund" is like viewing an apple pie as "basically a pizza," because both of them are round and have a crust.

There's nothing wrong with investing in Berkshire Hathaway if you are happy with the risks and returns. What I don't understand is why you would want to "view" it as something that it isn't. What is the problem with saying "I am investing in the stock of a single $500 billion conglomerate of about sixty businesses?" How does it help you understand your own investments to "view it" as an index fund, when it's not?
Where did I say I invest/invested in BRK? Where did I say everyone has to have my viewpoints?

I am actually disappointed somebody with 35k+ posts and an on the "Advisory Board" would respond to another member like this.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by nisiprius » Sun Mar 04, 2018 8:23 pm

(Removed by poster).
Last edited by nisiprius on Sun Mar 04, 2018 8:27 pm, edited 1 time in total.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by nisiprius » Sun Mar 04, 2018 8:25 pm

Helo80 wrote:
Sun Mar 04, 2018 8:21 pm
Where did I say I invest/invested in BRK? Where did I say everyone has to have my viewpoints?

I am actually disappointed somebody with 35k+ posts and an on the "Advisory Board" would respond to another member like this.
I've edited my post to remove any suggestion that you invest in BRK.

On second thought, I'll just blank the whole post.
Last edited by nisiprius on Sun Mar 04, 2018 9:20 pm, edited 2 times in total.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by il0kin » Sun Mar 04, 2018 8:31 pm

I own VINIX, which includes BRK.B. Works for me :)

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Sun Mar 04, 2018 9:15 pm

folkher0 wrote:
Sun Mar 04, 2018 8:06 pm
Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition. Also, I do like how Buffett speaks so highly of S&P500 Index funds. I take it Berkshire has done so extraordinarily well that even Buffett is surprised, and at this point in his life, he'd rather give good advice that continue to dominate and grow his power and holdings. For example, you really do not see the FAANGs out there giving investing advice (though, it's a tough comparison as they are technology and not financial investor...
Two problems with Berkshire as an index that I see:

1. So much of the value of the stock is tied into the cult of buffet. It won't look like an index after he's gone.

2. What if there is some scandal, bad press, dodgy activity comes to light about Berkshire? The whole thing would plummet. I don't expect anything like that but that's the whole point.
While I agree Berkshire is no index fund or substitute, I disagree completely with both of these assertions.
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by folkher0 » Sun Mar 04, 2018 10:10 pm

bgf wrote:
Sun Mar 04, 2018 9:15 pm
folkher0 wrote:
Sun Mar 04, 2018 8:06 pm
Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition. Also, I do like how Buffett speaks so highly of S&P500 Index funds. I take it Berkshire has done so extraordinarily well that even Buffett is surprised, and at this point in his life, he'd rather give good advice that continue to dominate and grow his power and holdings. For example, you really do not see the FAANGs out there giving investing advice (though, it's a tough comparison as they are technology and not financial investor...
Two problems with Berkshire as an index that I see:

1. So much of the value of the stock is tied into the cult of buffet. It won't look like an index after he's gone.

2. What if there is some scandal, bad press, dodgy activity comes to light about Berkshire? The whole thing would plummet. I don't expect anything like that but that's the whole point.
While I agree Berkshire is no index fund or substitute, I disagree completely with both of these assertions.


Fair enough. I guess my real point is that it's a single company. Sure it's a company that owns other comapanies, but it has vulnarabilities, just like any other single stock.

Some of those vulnarabilities are known, some are unknown. I'm not the one to analyze those vulnarabilities, that's why I'm basically a three fund guy and don't own any stocks.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by mpsz » Sun Mar 04, 2018 10:18 pm

I hold Berkshire B-shares for the Geico car insurance discount. I do not view it as a replacement for an index fund.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by sco » Mon Mar 05, 2018 7:44 am

mpsz wrote:
Sun Mar 04, 2018 10:18 pm
I hold Berkshire B-shares for the Geico car insurance discount. I do not view it as a replacement for an index fund.
I do the same, some days it tracks the total market very nicely, other days it’s doing something random. If it wasn’t for the dint, I wouldn’t have any.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by UpperNwGuy » Mon Mar 05, 2018 7:54 am

uberational44 wrote:
Sun Mar 04, 2018 5:02 pm
It would be far more tax efficient to hold the stocks as the dividends would be taxed differently...

Obviously, you are be taking a punt that the company will survive after he departs, but the man has had so long to cement it's future that it is sbound to do well even when he's gone...
Not me. The company is NOT "bound to do well even when he's gone."

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Mon Mar 05, 2018 10:27 am

berkshire is what it is. it is a conglomerate with a huge, profitable insurance company that allows a massive float ($100b+ and growing) to be invested in US public equities. berkshire also owns many other operating businesses, some excellent, some so so, that generate cash flows that get sent up for future allocation into other attractive ventures. it also currently holds over $100b in cash/equivalents.

financially, berkshire is a fortress, but it is still technically one legal entity.

invest in it, or don't. but i think anyone who does not fully understand the company should refrain from making judgments about its risks. in what position are you to do so?
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by unclescrooge » Mon Mar 05, 2018 11:28 am

If I ever set up an irrevocable trust, I would put all the assets in non dividend paying stocks. This is because of my (admittedly limited) understanding that trusts are taxed at the highest bracket very quickly.

For simplicity, I'd probably choose BRK. It owns 100 diverse companies with wide economic moats. Unlike GE, it's management had never been interested in gaming quarterly results. Also unlike GE, they have always valued honesty and transparency over short term profits.

It's results have often lagged the market when valuations get out of hand (late 90s). But in the end, the market reverts to value and when you buy cheap, you're eventually rewarded for it. This is a philosophy I believe is true, and will last my lifetime.

I'd be ok using it as a substitute for S&P index in a trust.

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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by core4portfolio » Mon Mar 05, 2018 11:33 am

I have 1 stock of BRK.B to get the Geico 8% discount. I bought it few week before @ 216 for 1 share which saves 32 bucks on my 6 months of insurance on my new CRV. I will be holding this one share since then. But not planning to sell that one share.
Since OP post is using the word - instead: I would say No I dont invest instead of SP500
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Kitty Telltales » Mon Mar 05, 2018 11:34 am

Helo80 wrote:
Sun Mar 04, 2018 8:21 pm
nisiprius wrote:
Sun Mar 04, 2018 7:46 pm
Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition.
It's not a technicality. It's not close to being a diversified mutual fund. It's even farther away from being an index fund.

To view Berkshire Hathaway as "basically an index fund" is like viewing an apple pie as "basically a pizza," because both of them are round and have a crust.

There's nothing wrong with investing in Berkshire Hathaway if you are happy with the risks and returns. What I don't understand is why you would want to "view" it as something that it isn't. What is the problem with saying "I am investing in the stock of a single $500 billion conglomerate of about sixty businesses?" How does it help you understand your own investments to "view it" as an index fund, when it's not?
Where did I say I invest/invested in BRK? Where did I say everyone has to have my viewpoints?


I am actually disappointed somebody with 35k+ posts and an on the "Advisory Board" would respond to another member like this.

Actually I find this exchange helpful. In the past I may have considered Berkshire Hathaway an index fund, but I certainly don’t now. Thank you both for clearing it up.

james22
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by james22 » Mon Mar 05, 2018 12:43 pm

Yes, I invest in BRK rather than Index Funds in my taxable account (tax efficient, valuation, anti-fragile).
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

inbox788
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by inbox788 » Mon Mar 05, 2018 12:44 pm

Kitty Telltales wrote:
Mon Mar 05, 2018 11:34 am
Helo80 wrote:
Sun Mar 04, 2018 8:21 pm
nisiprius wrote:
Sun Mar 04, 2018 7:46 pm
Helo80 wrote:
Sun Mar 04, 2018 6:57 pm
I view Berkshire as basically an "index fund", even though it does not technically fit the definition.
It's not a technicality. It's not close to being a diversified mutual fund. It's even farther away from being an index fund.

To view Berkshire Hathaway as "basically an index fund" is like viewing an apple pie as "basically a pizza," because both of them are round and have a crust.

There's nothing wrong with investing in Berkshire Hathaway if you are happy with the risks and returns. What I don't understand is why you would want to "view" it as something that it isn't. What is the problem with saying "I am investing in the stock of a single $500 billion conglomerate of about sixty businesses?" How does it help you understand your own investments to "view it" as an index fund, when it's not?
Where did I say I invest/invested in BRK? Where did I say everyone has to have my viewpoints?


I am actually disappointed somebody with 35k+ posts and an on the "Advisory Board" would respond to another member like this.

Actually I find this exchange helpful. In the past I may have considered Berkshire Hathaway an index fund, but I certainly don’t now. Thank you both for clearing it up.
I still consider it like an index fund. Clearly not everything, since it's an operating company/conglomerate, but if you look at turnover, a large portion of Berkshire Hathaway money flow stays fixed. All of the subsidiary companies, which is about half the company, and much of the investment portfolio is unchanged. Sure, he's always buying and selling, and we hear about changing positions, but if you watch the dollars, most all of it is in buy and hold mode. One of the main reasons investing in index funds works is because of the low cost, and part of the low cost is low turnover. https://www.wsj.com/articles/SB10001424 ... 4163216448

I'm still trying to figure out the taxation effect of not having dividends disbursed. Is it more tax efficient? Is it being double taxed? All else being equal, is someone in a higher tax bracket better off in BRK while the lower tax brackets prefer SP500?

BTW, I think the perceived risk of Buffets departure is too one sided. As much as the risk of some fall, there is potential breakup/breakoff benefit from spinning off/selling some of the companies. Sooner or later, I see a manager breaking away from the Buy and Hold Forever commitment. But hopefully, the picks and shovels aspect never goes away.
On the Fox Business segment, Montagne said, “If you think of Warren Buffett, back in the gold rush days, 150 years ago, he’d be the guy at the side of the road selling you the flour, the grains, the picks and the shovels and the jeans on your way out west.” In her view, Buffett isn’t interested in speculating on a gold mine but he’s happy to sell all of those risk-taking gold miners the stuff they need to go prospecting themselves.
https://www.mdm.com/blogs/6-mergers-acq ... hats-ahead

wrongfunds
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by wrongfunds » Mon Mar 05, 2018 12:59 pm

How would you set up your investing to DCA in to Berkshire Hathaway every pay period?

uberational44
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by uberational44 » Mon Mar 05, 2018 5:10 pm

core4portfolio wrote:
Mon Mar 05, 2018 11:33 am
I have 1 stock of BRK.B to get the Geico 8% discount. I bought it few week before @ 216 for 1 share which saves 32 bucks on my 6 months of insurance on my new CRV. I will be holding this one share since then. But not planning to sell that one share.
Since OP post is using the word - instead: I would say No I dont invest instead of SP500
A very boglehead-esque comment :sharebeer

Seriously though, I might stick with S&P
Marketeer investing as a hobby. Interested in modern takes on value investing, passive investing and general contrarianism.

NYCwriter
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by NYCwriter » Mon Mar 05, 2018 8:21 pm

I bought shares in BRK.B some years ago for that special club feeling, but it's less than 3% of my portfolio so it doesn't really move the needle either way. I'd never choose it instead of a core index fund. I didn't have to pay transaction fees when I bought shares, and it' been such a steady eddy that unlike some growth/momentum holdings I've never felt inclined to trade or sell. It's like the world's cheapest little mutual fund. It's more than doubled since I got it, and it's in taxable so I will probably just leave it there forever.

I agree with the person who said that a restructuring or selling of assets might create interest and increase price (didn't Buffet suggest this?) but there's no way of knowing. I do not think it will have the same cachet after Buffet is gone, but the company has significant value. On valuation alone....

drk
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Location: Seattle

Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by drk » Mon Mar 05, 2018 10:51 pm

inbox788 wrote:
Mon Mar 05, 2018 12:44 pm
I still consider it like an index fund. Clearly not everything, since it's an operating company/conglomerate, but if you look at turnover, a large portion of Berkshire Hathaway money flow stays fixed. All of the subsidiary companies, which is about half the company, and much of the investment portfolio is unchanged. Sure, he's always buying and selling, and we hear about changing positions, but if you watch the dollars, most all of it is in buy and hold mode. One of the main reasons investing in index funds works is because of the low cost, and part of the low cost is low turnover. https://www.wsj.com/articles/SB10001424 ... 4163216448
What index does it track? I would have a hard time proposing a reasonable index to produce BH's holdings, but I can understand calling it a low-cost active large-cap value investment vehicle (or "fund" if we allow ourselves some legal liberties).

inbox788
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by inbox788 » Tue Mar 06, 2018 1:32 am

drk wrote:
Mon Mar 05, 2018 10:51 pm
inbox788 wrote:
Mon Mar 05, 2018 12:44 pm
I still consider it like an index fund. Clearly not everything, since it's an operating company/conglomerate, but if you look at turnover, a large portion of Berkshire Hathaway money flow stays fixed. All of the subsidiary companies, which is about half the company, and much of the investment portfolio is unchanged. Sure, he's always buying and selling, and we hear about changing positions, but if you watch the dollars, most all of it is in buy and hold mode. One of the main reasons investing in index funds works is because of the low cost, and part of the low cost is low turnover. https://www.wsj.com/articles/SB10001424 ... 4163216448
What index does it track? I would have a hard time proposing a reasonable index to produce BH's holdings, but I can understand calling it a low-cost active large-cap value investment vehicle (or "fund" if we allow ourselves some legal liberties).
It's its own index, but if you wanted to choose another index that it's similar to, how about the DJIA? It also tracks the SP500 fairly well too.

https://finance.google.com/finance?chdn ... jAHKkLv4Bg

bgf
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Tue Mar 06, 2018 8:54 am

http://www.dataroma.com/m/holdings.php?m=BRK

berkshire's public equity holdings as of Q4 2017.

of course, berkshire is much much more now than its public equities.

for comparison, here are all the public equities held by Markel, and selected by Tom Gayner, who has outpaced the sp500 for i think like 20 years running now. Markel is very similar to Berkshire. i own both.

http://www.dataroma.com/m/holdings.php?m=MKL
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

aristotelian
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by aristotelian » Tue Mar 06, 2018 9:00 am

nisiprius wrote:
Sun Mar 04, 2018 6:15 pm


4) Everything depends on the starting point, but it is nevertheless relevant that over the last ten years, BRK.B stock (orange) has not been terribly different, and certainly not dramatically better, than the Vanguard Total Stock Market Index Fund (blue) (or the Vanguard 500 Index fund Buffett mentions, VFINX, green). The "past performance" disclaimer works both ways, of course; the fact that BRK didn't outperform an index fund doesn't mean it might not outperform it in the future.

Source
Image

P.S. I wrote that before reading AndrewXnn's point. He's correct. The issue with any such comparison is that because of the relative volatility of BRK compared to the S&P 500, shifting the starting point small amounts often makes big differences in the relative results. It's hard to say what would be a "neutral, objective" starting point that takes into account the fact that the huge Berkshire Hathaway of today is not similar to and will not behave the same way as the Berkshire Hathaway of decades ago. The "round number" 1/1/2000 might be less objectionable than "the last ten years;" the results of starting at 1/1/2000 instead of 3/4/2008 are not very different.
Interesting. I wonder if the claim that BRK always outperforms the S&P is due to focus on price. Since BRK's business model is to hoard cash rather than pay a dividend, it's going to have a natural 2% advantage in price over the S&P even if the total return is the same.

bgf
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Tue Mar 06, 2018 9:35 am

aristotelian wrote:
Tue Mar 06, 2018 9:00 am
Interesting. I wonder if the claim that BRK always outperforms the S&P is due to focus on price. Since BRK's business model is to hoard cash rather than pay a dividend, it's going to have a natural 2% advantage in price over the S&P even if the total return is the same.
that is basically part of OPs question, right? berkshire is more tax efficient and cost effective than an SP500 fund. though taxes differ for individuals, if you held berkshire for 20 years, you paid precisely $0 in taxes and expenses, except maybe your broker fee which would cancel out as you would have paid that to purchase an SP500 ETF. with the SP500, you also paid an expense ratio and taxes on your dividends throughout that 20 year period. both of those decreased your total return even if dividends were reinvested without cost. with the sp500, you also had to deal with capital gains during that period and the taxes associated with those. not so with berkshire.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

inbox788
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by inbox788 » Tue Mar 06, 2018 12:55 pm

bgf wrote:
Tue Mar 06, 2018 8:54 am
http://www.dataroma.com/m/holdings.php?m=BRK

berkshire's public equity holdings as of Q4 2017.

of course, berkshire is much much more now than its public equities.

for comparison, here are all the public equities held by Markel, and selected by Tom Gayner, who has outpaced the sp500 for i think like 20 years running now. Markel is very similar to Berkshire. i own both.

http://www.dataroma.com/m/holdings.php?m=MKL
Interesting about MKL. Note that more than 10% of their investments is in BRK!

Note the low turnover at BRK, and how sometimes gigantic positions are added or removed akin to what occurs when a stock is added or dropped from an index:

http://www.dataroma.com/m/hist/hist.php?f=BRK&s=AXP
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=KO
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=WFC (rebalance)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=V
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=AAPL (accumulation)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=KHC (added in 2015)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=BAC (added in 2017)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=IBM (removed 2017)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=JNJ (removed 2012)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=WMT (removed 2016)
http://www.dataroma.com/m/hist/hist.php?f=BRK&s=VZ (removed 2016)

No doubt it's an active fund, but the slow turnover of their huge holdings overshadow any effect they may have on their other investments. Just tracking the few large holdings at BRK is like using SP500 as a proxy for total market. http://www.etf.com/sections/index-inves ... nopaging=1 And their subsidiaries are for the most part always added and never removed, so it adds further stability to the Berkshire Index. Since they're not traded, that adds another layer of obfuscation trying to value their worth. You can get an indirect measurement simply taking the market cap of BRK and subtracting out their public holdings.
[BTW, here's an interesting presentation I came across while searching for a sum of the parts valuation. http://www.tilsonfunds.com/BRK.pdf ]

Texanbybirth
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by Texanbybirth » Tue Mar 06, 2018 1:16 pm

core4portfolio wrote:
Mon Mar 05, 2018 11:33 am
I have 1 stock of BRK.B to get the Geico 8% discount. I bought it few week before @ 216 for 1 share which saves 32 bucks on my 6 months of insurance on my new CRV. I will be holding this one share since then. But not planning to sell that one share.
Since OP post is using the word - instead: I would say No I dont invest instead of SP500
We're with GEICO, and I hadn't heard of this benefit. If we were to purchase a share of BRK.B in taxable, how would I go about indicating this on the website/calling GEICO?

bgf
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by bgf » Tue Mar 06, 2018 1:50 pm

inbox788 wrote:
Tue Mar 06, 2018 12:55 pm
[BTW, here's an interesting presentation I came across while searching for a sum of the parts valuation. http://www.tilsonfunds.com/BRK.pdf ]
thank you for the link! i did not know that whitney tilson had done an updated evaluation. i read one of his done a little while back, and he concluded that berkshire was undervalued (he was right, it looks like).

i just skimmed to the end, and he says intrinsic value is currently 27% above market price. sounds good to me.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

duckcalldan
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by duckcalldan » Tue Mar 06, 2018 6:14 pm

Not instead of, but in addition to.

I bought 5 shares of BRK.B back in the late 90s, 250 shares post-split. It’s a tiny bit of my net worth, between 1-2%. I’m in no hurry to sell.

james22
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by james22 » Tue Mar 06, 2018 10:14 pm

bgf wrote:
Tue Mar 06, 2018 1:50 pm
[BRK] intrinsic value is currently 27% above market price.
This the issue (relative valuation) with any market price comparison between BRK and the S&P 500 Index, rather then the starting point - BRK managed to match the overvalued index's performance while undervalued itself.

And why past performance *shouldn't* be predictive as both valuations correct.
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

ryanhan
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Re: Does Anyone Invest In Berkshire Hathaway Instead Of Index Funds?

Post by ryanhan » Tue Mar 06, 2018 11:07 pm

With sincere apologies for my ignorance, would someone kindly explain the OP's comment that "it would be far more tax efficient to hold the stocks as the dividends would be taxed differently?"

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