Why doesn’t BRK just buy SP500 index fund?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
OCDinvestor
Posts: 44
Joined: Thu May 09, 2019 2:16 pm

Why doesn’t BRK just buy SP500 index fund?

Post by OCDinvestor » Wed May 06, 2020 6:49 am

If the CEO claims that SP500 index funds are very difficult to beat, what is stopping BRK from dumping several billion into an S&P500 index fund?

Jags4186
Posts: 4880
Joined: Wed Jun 18, 2014 7:12 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Jags4186 » Wed May 06, 2020 6:52 am

Because Warren Buffet and Charlie Munger believe they can beat the SP500.

minimalistmarc
Posts: 949
Joined: Fri Jul 24, 2015 4:38 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by minimalistmarc » Wed May 06, 2020 6:56 am

OCDinvestor wrote:
Wed May 06, 2020 6:49 am
If the CEO claims that SP500 index funds are very difficult to beat, what is stopping BRK from dumping several billion into an S&P500 index fund?
They want to buy the entire company and make it more profitable

User avatar
Brianmcg321
Posts: 710
Joined: Mon Jul 15, 2019 8:23 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Brianmcg321 » Wed May 06, 2020 7:10 am

OCDinvestor wrote:
Wed May 06, 2020 6:49 am
If the CEO claims that SP500 index funds are very difficult to beat, what is stopping BRK from dumping several billion into an S&P500 index fund?
It’s difficult to beat for normal people. Buffett and Munger are not normal.

And like another poster said, they buy entire companies and change management. That’s a lot different that buying 100 shares of some stock.
Last edited by Brianmcg321 on Wed May 06, 2020 7:12 am, edited 1 time in total.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

dukeblue219
Posts: 754
Joined: Fri Jan 29, 2016 12:40 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by dukeblue219 » Wed May 06, 2020 7:12 am

I believe Buffet might say that IF it came down to that he'd rather just issue massive special dividends or buybacks to return the cash to shareholders and let them buy their own index funds.

His view is that he can beat the market, and while he hasn't lately, he certainly has tools at this disposal that we don't AND that mutual funds don't either.

Call_Me_Op
Posts: 7878
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Call_Me_Op » Wed May 06, 2020 7:20 am

Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
..or they'd have nothing to do.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
bottlecap
Posts: 6422
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Why doesn’t BRK just buy SP500 index fund?

Post by bottlecap » Wed May 06, 2020 7:53 am

Because Buffett is a smart guy. He has parlayed some early outsized luck into a huge financial marketing empire. You don’t get older, wiser and more experienced in investing and "lose your touch" as some suggest. You just revert to the mean.

The brand is his Empire. Everything he does is calculated to increase the mystique of the brand. For example, most Buffett quotes are incomplete, unspecific, and can be interpreted multiple ways, leaving everyone with their own opinion of what his investing genius really is.

Throw in some folksy sayings on CNBC, playing the ukulele at shareholder meetings, insinuating you live in the same house you did before you were Uber wealthy, pretend your kids made it on their own, say you don’t pay enough in taxes while minimizing the taxes you have to pay, keep your unusual romantic escapades under wraps, and you have all the makings of a legendary brand. You have mystique.

That brand creates hope that he is a down-home genius who may very well rekindle the old magic one day.

An investing strategy that calls for simply buying the S&P 500 would completely destroy the mystique, undermine the brand and above all remove all hope BRK will outperform the market in the future. People wouldn't pay more than .1% in fees for that. People wouldn’t consider him a genius. As long as they consider him a special genius and the brand provides hope of beating the market, people will forgive, and pay for, underperformance.

JT

User avatar
JoMoney
Posts: 9340
Joined: Tue Jul 23, 2013 5:31 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by JoMoney » Wed May 06, 2020 7:56 am

If they did, I wouldn't want to own BRK stock, which has a market premium of something like 1.2x book value, would add an additional corporate tax level on any dividends, and would continue to hold a giant cash balance because Warren sleeps better knowing they have a lot of liquidity available.
But they wouldn't do that either, Warren isn't an "efficient market" guy, he believes they do have an advantage with there business/market sense, and I think he's done a pretty good job demonstrating that. He also has a vested interest psychologically in the company he built.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

iamblessed
Posts: 590
Joined: Sat Jun 09, 2018 11:52 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by iamblessed » Wed May 06, 2020 8:20 am

Warren estate will when he passes away.

theorist
Posts: 631
Joined: Sat Sep 28, 2019 11:39 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by theorist » Wed May 06, 2020 9:03 am

BRK needs to make large investments to move the needle on their 500 billion dollar enterprise. So suppose they invest 80 billion in S&P 500 mutual funds or ETFs. This will surely create a problem for them in the event that they want to move quickly to make a large acquisition. It is one thing if you or I want to redeem our total market or S&P 500 shares. It is another thing entirely to redeem 50 billion dollars worth of shares!

As BRK likes to have the freedom to talk informally and then act quickly in making deals during times of opportunity, this is one more reason they may hesitate to tie up their free cash in index funds, instead of holding it as cash.

User avatar
firebirdparts
Posts: 1586
Joined: Thu Jun 13, 2019 4:21 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by firebirdparts » Wed May 06, 2020 10:17 am

The answer is obvious, and I guess the OP knew that. There is a chance that they'll find something to buy, and when they do, there's a chance they'll be happy/unhappy about owning an index fund that particular day. The longer it drags out, the dumber they look, but you don't know that when you are trying to decide whether to capitulate each day. Each day, you only have to decide to hold out for 1 more day.

That cash hoard is quite a drag on their performance, obviously. They know that. They knew it before it happened. They just didn't know how long they'd go.
A fool and your money are soon partners

statefan03
Posts: 39
Joined: Wed Mar 25, 2020 12:31 pm
Location: NC

Re: Why doesn’t BRK just buy SP500 index fund?

Post by statefan03 » Wed May 06, 2020 10:28 am

Buffett has publicly stated why buy the S&P 500 when it's full of losers. Many are overpriced. Many aren't growing. Many are leveraged. Just focus on buying the 10-20 real winners.

Haldier
Posts: 7
Joined: Fri Apr 17, 2020 9:33 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Haldier » Wed May 06, 2020 10:39 am

What would actually happen if a company in the S&P500 that large actually just did this? Like if Berkshire only owned the index, would its stock price mirror the index exactly?

Actually, why don't all businesses invest part of their earnings into index funds like individuals do? Then you would have the income you make from your main products and the dividend income from investing in the index.

So you'd have a more diverse income stream, and you'd partially own your competitors as well to help hedge against that.

For example, Apple has 200 billion cash. Why not buy 200 billion worth of VTSAX.

Grt2bOutdoors
Posts: 22576
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Grt2bOutdoors » Wed May 06, 2020 11:04 am

OCDinvestor wrote:
Wed May 06, 2020 6:49 am
If the CEO claims that SP500 index funds are very difficult to beat, what is stopping BRK from dumping several billion into an S&P500 index fund?
Ironic given the first three letters of your screenname :wink: It's all about control! Control of management, control of the balance sheet, income statement and cash flows. Think of WB and CM as the puppeteers - a pull of the strings makes the underlying puppets move in the direction they want, when they want, however they want.

Now, try that with a passive investment in a bunch of companies where management is thinking out for A number one first - hint, hint, it's not you. They will say it's for the betterment of the shareholders, but what shareholder in their right mind would voluntarily give some "manager" a vast chunk of the company's voting control without them having to pay for it in a substantial manner, instead of the "funny money" compensation plans with stock and then have the same exact management direct the buyback of the company stock at inflated prices leaving the company at risk when you have calamitous events like we saw a month ago, where only the absolute strongest of companies were able to borrow where the others had trouble getting their hands on cash? As Warren said before, you know who's been swimming naked when the tide goes out. It was true 12 years ago, and it holds true today.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

magicrat
Posts: 1010
Joined: Sat Nov 29, 2014 7:04 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by magicrat » Wed May 06, 2020 11:54 am

Haldier wrote:
Wed May 06, 2020 10:39 am
What would actually happen if a company in the S&P500 that large actually just did this? Like if Berkshire only owned the index, would its stock price mirror the index exactly?

Actually, why don't all businesses invest part of their earnings into index funds like individuals do? Then you would have the income you make from your main products and the dividend income from investing in the index.

So you'd have a more diverse income stream, and you'd partially own your competitors as well to help hedge against that.

For example, Apple has 200 billion cash. Why not buy 200 billion worth of VTSAX.
No, its stock price would not mirror the index. It would dramatically under perform. It is expensive to be a public company and no one in their right mind would invest in a company that turns around and invests only in an index. Investors can do that themselves.

Apple is not going to invest $200B in VTSAX because they would probably like that cash to be there when they want to use it.

Grt2bOutdoors
Posts: 22576
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Grt2bOutdoors » Wed May 06, 2020 3:45 pm

JoMoney wrote:
Wed May 06, 2020 7:56 am
If they did, I wouldn't want to own BRK stock, which has a market premium of something like 1.2x book value, would add an additional corporate tax level on any dividends, and would continue to hold a giant cash balance because Warren sleeps better knowing they have a lot of liquidity available.
But they wouldn't do that either, Warren isn't an "efficient market" guy, he believes they do have an advantage with there business/market sense, and I think he's done a pretty good job demonstrating that. He also has a vested interest psychologically in the company he built.
That's a cheap deal considering the S&P 500 is trading at 2.7x book value, Total Stock Market is at 2.5x book value, Value Index is at 1.7x book value.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

WhiteMaxima
Posts: 2143
Joined: Thu May 19, 2016 5:04 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by WhiteMaxima » Wed May 06, 2020 4:12 pm

BRKA/B pays no dividend : tax free, eventually low long term cap gain tax
BRKA/B pays very little corporate tax: low tax

SPY pays dividend: dividend tax pay: high tax
some SPY company pay high corporate tax: high tax

BRKA/B has holds undervalued company
SPY holds company at overheated market

User avatar
arcticpineapplecorp.
Posts: 5312
Joined: Tue Mar 06, 2012 9:22 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by arcticpineapplecorp. » Wed May 06, 2020 4:37 pm

bottlecap wrote:
Wed May 06, 2020 7:53 am
keep your unusual romantic escapades under wraps,
wow, I had no idea until now. swingin' 70s I guess.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Elysium
Posts: 2964
Joined: Mon Apr 02, 2007 6:22 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Elysium » Wed May 06, 2020 4:55 pm

Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
But they haven't, Since 2003

In fact has done only so barely since 1999. Warren and Munger can't invest in S&P 500 because that would kill the legend, and they no longer intend to beat it instead do their own thing without worrying about the benchmark.

All legendary investors end up reverting back to mean one day, that has happened with WB too.

Grt2bOutdoors
Posts: 22576
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Grt2bOutdoors » Wed May 06, 2020 5:45 pm

Elysium wrote:
Wed May 06, 2020 4:55 pm
Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
But they haven't, Since 2003

In fact has done only so barely since 1999. Warren and Munger can't invest in S&P 500 because that would kill the legend, and they no longer intend to beat it instead do their own thing without worrying about the benchmark.

All legendary investors end up reverting back to mean one day, that has happened with WB too.
The thing is though, who's track record is it really. I mean, we believe Berkshire's results are synonymous with Warren Buffett but there are others who's hands are on the wheel as well making and divesting from various investments, all of which affect the total return of Berkshire Hathaway.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Chrono Triggered
Posts: 258
Joined: Wed Feb 17, 2016 12:55 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Chrono Triggered » Wed May 06, 2020 5:51 pm

If I invested in a firm that invested mostly in an index fund, I would instead invest in the index fund they are investing in.

rich126
Posts: 1565
Joined: Thu Mar 01, 2018 4:56 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by rich126 » Wed May 06, 2020 6:10 pm

BRK isn't a mutual fund or anything like that. It is an insurance company, that takes the profits and float and invests part of that money. In some cases they buy stocks, in other cases they buy entire companies. They also buy various bonds, or other private financial arrangements. I believe their arrangement with Occidental, at least partly, involves getting something like 8% a year.

For example they completely own companies such as:
Ben Bridge
Benjamin Moore
Geico
BNSF Railway
Duracell
NetJets
See's Candies
Dairy Queen (99% ownership)
Fruit of the Loom (also 99%)
and many other companies

Generally (I think I'm correct here) he buys good companies and leaves management intact and just collects some/all of the profits and use them to invest in other companies, including stock purchases.

Companies can go up and down but as long as they stay in business they will generate cash for him, and he doesn't need to put new money into them. Kind of like (well, I may be stretching here) someone buying a stock for its dividend, you may only care for the dividend and don't care much about the price of the stock, you just want it to continue the dividend payment and hopefully increase it over time.

People also talk about the cash he is holding but if you look at his history at BRK, his cash position is about the same percentage as his fixed income position has always been. It is just that he is holding more cash and less fixed income positions. There are some good articles on line.

This guy has some very good articles.
https://www.rationalwalk.com/thoughts-o ... able-cash/

I have some BRK. Initially I bought it because Buffett invested in things that were not companies I would imagine investing in (railroads for one) but I wasn't too happy with his purchase of airlines, or even Apple since I already owned that. I prefer him buying companies and making money that way (not like I can buy companies!). Not sure how long I will hold on to it but I don't see BRK in any danger and he still has a ton of cash to ride out bad times and buy companies.

The market right now (and for a while) has swung to rapid growth companies, especially cloud/SaaS companies that have skyrocketed and are up substantially this year.

Nowizard
Posts: 2835
Joined: Tue Oct 23, 2007 5:33 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Nowizard » Wed May 06, 2020 6:18 pm

One reason is that Buffett buys significant stakes in companies and that results in benefits such as placing people of his choice or approval on Boards. Buffett is not only an investor but often has influence with the business model of companies in which he invests.

Tim

User avatar
JoMoney
Posts: 9340
Joined: Tue Jul 23, 2013 5:31 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by JoMoney » Wed May 06, 2020 7:27 pm

Grt2bOutdoors wrote:
Wed May 06, 2020 3:45 pm
JoMoney wrote:
Wed May 06, 2020 7:56 am
If they did, I wouldn't want to own BRK stock, which has a market premium of something like 1.2x book value, would add an additional corporate tax level on any dividends, and would continue to hold a giant cash balance because Warren sleeps better knowing they have a lot of liquidity available.
But they wouldn't do that either, Warren isn't an "efficient market" guy, he believes they do have an advantage with there business/market sense, and I think he's done a pretty good job demonstrating that. He also has a vested interest psychologically in the company he built.
That's a cheap deal considering the S&P 500 is trading at 2.7x book value, Total Stock Market is at 2.5x book value, Value Index is at 1.7x book value.
It doesn't work that way, you'd be paying the 1.2x BV for BRK on top of it paying 2.5x for the stocks it holds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Slowtraveler
Posts: 203
Joined: Wed Jan 10, 2018 10:21 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Slowtraveler » Wed May 06, 2020 7:32 pm

He would've done better for the past decade if had finance wise but he loves his work. Berkshire is likely past its glory and I expect it to under perform the index but life is about more than money. He's happy doing something he loves. He's tap dancing to work.

User avatar
abuss368
Posts: 20129
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why doesn’t BRK just buy SP500 index fund?

Post by abuss368 » Wed May 06, 2020 10:58 pm

Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
Yes!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

HappyJack
Posts: 209
Joined: Thu Jan 10, 2019 7:45 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by HappyJack » Wed May 06, 2020 11:30 pm

Warren Buffett on Saturday

I mean the truth is that I recommend the S&P500 to people. And I happen to believe that Berkshire is about as solid as any single investment can be, in terms of earning reasonable returns over time. But, I would not want to bet my life on whether we beat the S&P500 over the next 10 years.

1130Super
Posts: 504
Joined: Thu Nov 07, 2019 8:59 am
Location: Minnesota

Re: Why doesn’t BRK just buy SP500 index fund?

Post by 1130Super » Wed May 06, 2020 11:45 pm

Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
Well there are synergies buy buying whole companies for instance DairyQueen now gets their ketchup from Heinz at cost instead of having to buy it wholesale

User avatar
birdog
Posts: 756
Joined: Fri Apr 07, 2017 1:35 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by birdog » Thu May 07, 2020 6:53 am

”Specifically, Berkshire bought shares of the Vanguard S&P 500 ETF (NYSEMKT:VOO) and SPDR S&P 500 ETF (NYSEMKT:SPY). Both purchases took place in the fourth quarter and were rather small by Berkshire's standards. They account for a combined $25 million of Berkshire Hathaway's portfolio, while the company's larger stock positions are in the tens of billions of dollars.

However, I wouldn't be surprised if these were just the beginning, and Berkshire ends up building significant index fund holdings in the quarters and years to come.”


https://www.fool.com/investing/2020/02/ ... ce-an.aspx

Jags4186
Posts: 4880
Joined: Wed Jun 18, 2014 7:12 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Jags4186 » Thu May 07, 2020 7:03 am

1130Super wrote:
Wed May 06, 2020 11:45 pm
Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
Well there are synergies buy buying whole companies for instance DairyQueen now gets their ketchup from Heinz at cost instead of having to buy it wholesale
I highly doubt that. Any savings DQ would get from buying "at cost" from Heinz would cost Heinz money on their end. Additionally, you have to buy through distribution (added cost) because Heinz is not going to be delivering ketchup packets to 100s of DQ locations.

1130Super
Posts: 504
Joined: Thu Nov 07, 2019 8:59 am
Location: Minnesota

Re: Why doesn’t BRK just buy SP500 index fund?

Post by 1130Super » Thu May 07, 2020 9:28 am

Jags4186 wrote:
Thu May 07, 2020 7:03 am
1130Super wrote:
Wed May 06, 2020 11:45 pm
Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
Well there are synergies buy buying whole companies for instance DairyQueen now gets their ketchup from Heinz at cost instead of having to buy it wholesale
I highly doubt that. Any savings DQ would get from buying "at cost" from Heinz would cost Heinz money on their end. Additionally, you have to buy through distribution (added cost) because Heinz is not going to be delivering ketchup packets to 100s of DQ locations.
Except DQ didn’t get their Ketchup from Hienz before, In theory a lot of the Whole companies they own have some synergies that BRK should be able to benefit from.

Jags4186
Posts: 4880
Joined: Wed Jun 18, 2014 7:12 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Jags4186 » Thu May 07, 2020 10:03 am

1130Super wrote:
Thu May 07, 2020 9:28 am
Jags4186 wrote:
Thu May 07, 2020 7:03 am
1130Super wrote:
Wed May 06, 2020 11:45 pm
Jags4186 wrote:
Wed May 06, 2020 6:52 am
Because Warren Buffet and Charlie Munger believe they can beat the SP500.
Well there are synergies buy buying whole companies for instance DairyQueen now gets their ketchup from Heinz at cost instead of having to buy it wholesale
I highly doubt that. Any savings DQ would get from buying "at cost" from Heinz would cost Heinz money on their end. Additionally, you have to buy through distribution (added cost) because Heinz is not going to be delivering ketchup packets to 100s of DQ locations.
Except DQ didn’t get their Ketchup from Hienz before, In theory a lot of the Whole companies they own have some synergies that BRK should be able to benefit from.
It doesn’t matter whether or not they bought from them before. If you sell “at cost” that means you are losing money, lowering margins, and increasing overhead. Besides, Berkshire Hathaway only owns 20% or so of KH and has admitted it was a bad buy.

dziuniek
Posts: 769
Joined: Mon Jul 23, 2012 2:54 pm
Location: Corrupticut

Re: Why doesn’t BRK just buy SP500 index fund?

Post by dziuniek » Thu May 07, 2020 10:17 am

Because why would I buy BKR.B with another layer of expenses on top of the ER of a SP500 fund /etf ??

willinghamt19
Posts: 13
Joined: Fri Oct 18, 2019 2:16 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by willinghamt19 » Thu May 07, 2020 10:22 am

Doesn’t BRK do a ton of private equity? Typically private equity returns will substantially outpace those of the S&P500 over the long term (but the variance is really high too).

rockstar
Posts: 385
Joined: Mon Feb 03, 2020 6:51 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by rockstar » Thu May 07, 2020 10:25 am

HappyJack wrote:
Wed May 06, 2020 11:30 pm
Warren Buffett on Saturday

I mean the truth is that I recommend the S&P500 to people. And I happen to believe that Berkshire is about as solid as any single investment can be, in terms of earning reasonable returns over time. But, I would not want to bet my life on whether we beat the S&P500 over the next 10 years.
Makes sense. Maybe that is why he’s shifting his money into a fund when he dies.

User avatar
bertilak
Posts: 7526
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why doesn’t BRK just buy SP500 index fund?

Post by bertilak » Thu May 07, 2020 11:32 am

"Why doesn’t BRK just buy SP500 index fund?"

Because then they wouldn't have a controlling intrest in a company allowing them improve the company's performance.

Or, perhaps better yet, use one company's earnings to improve the performance of another company they own.

Best to read Charlie Munger's explanation.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

illumination
Posts: 678
Joined: Tue Apr 02, 2019 6:13 pm

Re: Why doesn’t BRK just buy SP500 index fund?

Post by illumination » Thu May 07, 2020 3:19 pm

It would essentially be waving the white flag of surrender if that was their dominant strategy moving forward. That they can't find value anymore for shareholders and now they just buy the whole index.

Berkshire is just too large now to consistently outperform the market. If I held it in a retirement account I would sell and just own an index fund instead. If it's in taxable you are probably stuck if it's a long term holding.

Buffett is in my opinion more of a figurehead anyway, but I think when he passes the stock price will suffer as many do still cling on to the idea of him running the ship. Stocks sometimes need a "story" and I just can't see decades from now many people clamoring to own Berkshire.

If you got in early on though, congrats. Same with people that bought things like Apple, Procter&Gamble, Johnson&Johnson, Altria, etc. decades ago.

Wanderingwheelz
Posts: 367
Joined: Mon Mar 04, 2019 9:52 am

Re: Why doesn’t BRK just buy SP500 index fund?

Post by Wanderingwheelz » Thu May 07, 2020 3:30 pm

Warren Buffett runs Berkshire like a business that he wants to be around forever. Most companies in the S&P 500 are not run that way.

Post Reply