Buffet buys gold miner

[SemiRetire]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

[Elysium]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

No. His record has been very unimpressive lately. BRK has not beaten S&P 500 for the trailing 18 years. His picks have been all over the place.

[nisiprius]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

You just said yourself that Buffett didn't buy gold, he bought a company that is in the gold mining business. Precious metals equity. That's completely different from gold. I myself own Archer-Daniels-Midlands stock by virtue of its inclusion in Total Stock, but I don't own any soybeans, not even any soybean futures contracts, not even the SOYB ETF.

[rockstar]

I think, he wants exposure to gold, but he wants a company that he can value. BRK is way too big these days to provide an alpha to the S&P 500. It's a nice equivalent if you don't want the dividend tax exposure from a S&P 500 fund.

Buffet has been telling his investors for a while now to buy the S&P 500 index.

[TheTimeLord]

2 points, one its Zerohedge so who cares, two I believe there are 4 people who manage investment portfolios for Berkshire so a buy by Berkshire is not necessarily a buy by Buffet as I understand it.

[Wanderingwheelz]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

You just said yourself that Buffett didn't buy gold, he bought a company that is in the gold mining business. Precious metals equity. That's completely different from gold. I myself own Archer-Daniels-Midlands stock by virtue of its inclusion in Total Stock, but I don't own any soybeans, not even any soybean futures contracts, not even the SOYB ETF.

Since it’s unlikely he’s buying inside an IRA, Buffet knows the tax treatment on a gold-related trade is much more favorable on a mining stock than buying physical gold, since that is taxed as a collectible.

[nisiprius]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

[Trader Joe]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

No, not at all.

[rockstar]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

You just said yourself that Buffett didn't buy gold, he bought a company that is in the gold mining business. Precious metals equity. That's completely different from gold. I myself own Archer-Daniels-Midlands stock by virtue of its inclusion in Total Stock, but I don't own any soybeans, not even any soybean futures contracts, not even the SOYB ETF.

Since it’s unlikely he’s buying inside an IRA, Buffet knows the tax treatment on a gold-related trade is much more favorable on a mining stock than buying physical gold, since that is taxed as a collectible.

Good point.

[000]

He's bought silver bullion before.

[Robert T]

.
The new buy of Barrick Gold Corp accounts for 0.28% of Berkshire's stock portfolio. I own a larger share of gold miners as part of my index fund portfolio.
.

[calvin+hobbes]

Oh hey remember that time a few months ago when he bought a large stake in Delta and then when he sold part of it people were doing all sorts of mental gymnastics to justify how it was a stealth move? Someone started a topic on that as well. He then proceeded cash out entirely to lock in a huge loss.

Count me in with everyone else who is not following any of his industry or stock picks.

[rockstar]

Oh hey remember that time a few months ago when he bought a large stake in Delta and then when he sold part of it people were doing all sorts of mental gymnastics to justify how it was a stealth move? Someone started a topic on that as well. He then proceeded cash out entirely to lock in a huge loss.

Count me in with everyone else who is not following any of his industry or stock picks.

They make good headlines. At the end of the day, he's giving a lot of his money to Gates.

[Random Musings]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

Not a fan of Zerohedge, but I also don't consider Wikipedia as a non biased information provider either. Our school district does not allow Wikipedia to be used as a reference source.

RM

RM

[Random Musings]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

Not a fan of Zerohedge, but I also don't consider Wikipedia as a non biased information provider either. Our school district does not allow Wikipedia to be used as a reference source.

RM

[rich126]

I'm not anti-gold and made a timely purchase last year but the amusing part I find is that once news is out that BRK bought some gold, then the share price of the stock of the mining company BRK bought jumps 8% in after hours trading. Lots of people following the leader or big names in the market.

[finite_difference]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

Not a fan of Zerohedge, but I also don't consider Wikipedia as a non biased information provider either. Our school district does not allow Wikipedia to be used as a reference source.

RM

RM

That seems antiquated to not allow Wikipedia. Better to train students to not rely solely on Wikipedia, and teach them about other reliable sources of information, but to not allow it at all seems shortsighted. There have been studies on Wikipedia’s accuracy, and it’s probably more accurate than 99.999% of websites nowadays. You can also do things like check the revision history on pages, etc.

Certain current events or controversial topics might be prone to errors but again, just learning how to detect that and write about the errors you find on Wikipedia or the web (and to correct them!) seems like a great way to teach folks about how to conduct research and separate fact from fiction.

[finite_difference]

2 points, one its Zerohedge so who cares, two I believe there are 4 people who manage investment portfolios for Berkshire so a buy by Berkshire is not necessarily a buy by Buffet as I understand it.

4 managers that are managing how many analysts? I’m assuming they have quite a team, with Buffet and the other 3 managers making the final decision?

[000]

Sell airlines low, buy gold miners high...

Why do this guy's stock picks matter??

[All Seasons]

Looks like American mettle was no match for the magical metal.

[Robot Monster]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

Not a fan of Zerohedge, but I also don't consider Wikipedia as a non biased information provider either. Our school district does not allow Wikipedia to be used as a reference source.

RM

RM

That seems antiquated to not allow Wikipedia. Better to train students to not rely solely on Wikipedia, and teach them about other reliable sources of information, but to not allow it at all seems shortsighted. There have been studies on Wikipedia’s accuracy, and it’s probably more accurate than 99.999% of websites nowadays. You can also do things like check the revision history on pages, etc.

Certain current events or controversial topics might be prone to errors but again, just learning how to detect that and write about the errors you find on Wikipedia or the web (and to correct them!) seems like a great way to teach folks about how to conduct research and separate fact from fiction.

For school, the citations Wikipedia uses for its content are what should be referenced, not Wikipedia itself. Anything in Wikipedia that has no citation should not be referenced.

[Actin]

Buffet hasn't been relevant in twenty years. Remove Apple from its holdings and you have a very bad ten year track record. This means as much as when they bought Delta.

[matthewbarnhart]

Not a fan of Zerohedge, but I also don't consider Wikipedia as a non biased information provider either. Our school district does not allow Wikipedia to be used as a reference source.

RM

Schools want students to cite their own research from original sources. A Wikipedia article is essentially a community-written student's essay... with research and citations from original sources.

Not allowing Wikipedia as a reference source has nothing to do with any perceived bias. It's no different than, back in my day, not allowing the Encyclopedia Britannica as a source.

In the case of the Zero Hedge article, there's a discussion on the Talk tab regarding how the site is described and why they chose the words they did for the article. (As if anyone with basic reading comprehension wouldn't come to the same conclusion after scrolling through the site for 30 seconds.)

[LFS1234]

Buffet hasn't been relevant in twenty years. Remove Apple from its holdings and you have a very bad ten year track record.

Buffett not buffet.

BRK-A closed at $116,700/share on 8/16/2010 and closed at $316,251/share yesterday. This works out to 10.5% compounded annually over the ten-year period.

I'm not sure how 10.5% compounded annually can be interpreted to constitute a "very bad ten year track record", a "somewhat bad ten year track record", or even a "little bit bad ten year track record".

There are three people responsible for portfolio investments at BRK, two of which are "new" investment managers who have been there for about ten years and who each manage a portfolio in the very low eleven figures (double-digit billions). Buffett manages the rest of the portfolio (triple digit billions). There are lots of other managers, but these manage individual business units rather than investment portfolios. There is no large staff of security analysts.

The Barrick position is a relatively small one, and therefore almost certainly selected by one of the "new" investment managers and not by Buffett himself. BRK doesn't disclose which portfolio manager is buying or selling which security. The "new" investment managers have no obligation to discuss any purchase or sale with Buffett in advance, although there is a short list of securities which they are not allowed to own due to potential real or perceived conflicts of interest.

For those who are interested and analytically inclined, trying to figure out what the portfolio manager is seeing in Barrick would be an interesting exercise. This may or may not end up being a good investment, and the verdict cannot be issued until the position has been sold and the check has cleared, which may be years or decades from now.

[All Seasons]

To those saying Buffett didn’t buy gold but bought stock. That’s true, but gold mining stocks are essentially a leveraged bet on gold. Buying a gold mining stock is to express an even bigger bullish bet on gold than just buying bullion.

[jaj2276]

...
2 points, one its Zerohedge so who cares...

Indeed. Just in case everyone isn't aware: from Wikipedia's article on Zero Hedge

Zero Hedge or ZeroHedge is a far-right libertarian financial blog, presenting staff-written articles and aggregating news and opinions from external sources. Zero Hedge, per its motto, is bearish in its investment outlook and analysis, often deriving from its adherence to the Austrian School of economics and credit cycles. While often labeled as a financial permabear, Zero Hedge has also been described as a source of "cutting-edge news, rumors and gossip in the financial industry".

Zero Hedge in-house content is posted under the pseudonym "Tyler Durden"; the founder and main editor was identified as Daniel Ivandjiiski.

The Wikipedia characterization of ZeroHedge is somewhere between a simple misrepresentation and totally unfair. If you're not reading ZeroHedge as but one source of your daily information, you're missing out on understanding how A LOT of the financial markets work. There are of course articles that are editorialized AND the selection of which articles to list will display an economic bias.

The tactic of labeling it a "far-right" financial blog will prevent half the country from even consuming the discussion and arguments presented within. You might be a follower of Paul Krugman's line of thinking but it would be helpful for you to understand the other side's logic and arguments before you anchor your beliefs.

As for the "political" connotation of "far-right", it seems like there's been a move towards labeling anything that's not "left" as "far-right". Heck even "alt-right" would be more correct than "far-right". I hope people understand that "far-right" and "far-left" people have more in common than those labeled "left" and "right".

[willthrill81]

BRK-A closed at $116,700/share on 8/16/2010 and closed at $316,251/share yesterday. This works out to 10.5% compounded annually over the ten-year period.

I'm not sure how 10.5% compounded annually can be interpreted to constitute a "very bad ten year track record", a "somewhat bad ten year track record", or even a "little bit bad ten year track record".

I get your point, but I believe that the bigger point is that Berkshire Hathaway has lagged the TSM and the S&P 500 significantly over the last 10 years. Since 2010, TSM returned 12.86% vs. BRK's 10.80%. Lagging by 2% a year for a decade is generally considered to be bad in the active management space.

[willthrill81]

To those saying Buffett didn’t buy gold but bought stock. That’s true, but gold mining stocks are essentially a leveraged bet on gold. Buying a gold mining stock is to express an even bigger bullish bet on gold than just buying bullion.

To be fair, I believe that only .3% of Berkshire's assets are in gold miners, so it's barely worth mentioning. It's interesting though, especially given all of the disdain that Buffett has had for gold until now. Perhaps if he is not immune to a little performance chasing?

[nedsaid]

https://www.zerohedge.com/markets/did-b ... ps-goldman

And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was... the world's (formerly biggest) gold miner:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

interesting switch given his past statements which the article above goes through some of them.


Will any Buffet fans on here consider switching positions on gold?

I wouldn't read too much into this news. First, Buffett is human like the rest of us and he has his mistakes. Second, there are managers involved in managing Bershire Hathaway's investments and this stock may not have been picked by Buffett. Third, B-H's portfolio is so large now that their investment choices are limited to the larger stocks. They could take positions in Micro-Cap stocks but the positions would be so small that they wouldn't make a difference in a very large portfolio.

[roguewarrior0]

Even before this, I was thinking of subbing IAU or GLD ETF in lieu of Total Bond Fund in the 3 Fund Portfolio. Thoughts given inflationary risks and low bond yields?

[RomeoMustDie]

https://www.kitco.com/news/2020-08-14/W ... -gold.html

We already know that Bogle began to invest in gold towards the end of his life.

Now long time gold skeptic Buffet and proponent of passive investing buys gold.

It seems that the two major guys that Bogleheads referenced have evolved to include gold in their portfolios.

Does that change your perception on three fund investment strategy?

[Misenplace]

https://www.kitco.com/news/2020-08-14/W ... -gold.html

We already know that Bogle began to invest in gold towards the end of his life.

Now long time gold skeptic Buffet and proponent of passive investing buys gold.

It seems that the two major guys that Bogleheads referenced have evolved to include gold in their portfolios.

Does that change your perception on three fund investment strategy?

This thread has been merged into the existing thread on the topic.

[hohum]

Buffett's position has always been "gold for me but not for thee." He denigrates it publically (I think Munger even said you're a "jerk" if you own gold at all). Yet he owned Handy & Harman for many years as one of his largest holdings, and its principal asset was piles of precious metals. He speculated in copper futures, tried to corner the silver market in a strange stunt (he bought at something like $7 an ounce in large size and sold a couple months later at $9 -- the price could have largely been driven up just from the hoopla and market pressure of him buying so much). And now Berkshire owns a gold miner. I think he's actually a gold/silver bug at heart with a belief that big inflation is the end game, but he knows owning piles of gold is not the way to make the biggest profit over time. So, internal conflict etc.

In his role as an unpaid financial educator, he tells people to buy the S&P 500 index and a few T-bills. I'm pretty sure that's not what he told people when he was trying to get them to invest in the Buffett partnerships.

As others have said, this is probably the purchase of another manager and not Buffett. But even if it were Buffett, it wouldn't really mean his thinking changed. Someone thinks Barrick is too cheap relative to a conservative assessment of its current gold reserves -- and as part of that they are most likely thinking the price of gold will be the same or higher five years from now.

But gold mining is actually a lousy business and if the average person is going to buy gold, they should just buy gold. The South African gold miners were all hit by apartheid. The Canadian miners are all hit by environmental and first people's legal issues. The miners in the former Soviet Union all have their own problems. When you buy a Canadian miner in Indonesia and think there can't be any problems that way, you end up with Bre-X.

Harry Browne in one of his books from the 1970s actually discusses precious metals miners versus precious metals. He points out that during a spectacular rise in the price of silver, Hecla Mining actually dropped in price -- there had been a fire at their largest mine with extensive damage, which not only meant huge expenses to repair but they also couldn't get any silver out of the ground to take advantage of the run-up.

Buying a basket of miners in an ETF might eliminate the idiosyncratic risk, but as a group it's amazing how fast the cost of extracting an ounce of gold rises when the price of gold goes up. The investment thesis is usually "right now it costs 1500 to get an ounce of gold and they sell it for 2000, so if gold goes to 3000 they will triple their margins!". Voila, leverage. But it doesn't seem to work like that. By the time gold gets to 3000, the cost to extract an ounce will be 2600.

[Wind_Reaver]

^^^
Excellent post hohum, thank you.

[Robot Monster]

...it's amazing how fast the cost of extracting an ounce of gold rises when the price of gold goes up. The investment thesis is usually "right now it costs 1500 to get an ounce of gold and they sell it for 2000, so if gold goes to 3000 they will triple their margins!". Voila, leverage. But it doesn't seem to work like that. By the time gold gets to 3000, the cost to extract an ounce will be 2600.

Can you explain why the cost of extracting gold goes up with the price? Barrick has 14 mining operations. Why would the cost to extract go up so much in any of these?

[knpstr]

interesting switch given his past statements which the article above goes through some of them.

He has never been against gold miners. Just gold itself as an investment, since gold is not a productive asset.

[hohum]

interesting switch given his past statements which the article above goes through some of them.

He has never been against gold miners. Just gold itself as an investment, since gold is not a productive asset.

Is silver a productive asset?

https://markets.businessinsider.com/new ... 1029228443#

Is copper a productive asset?

"According to Roger Lowenstein's book, 'Buffett,' Warren was far more speculative with his own investments than he was with Berkshire's. At one point he bought copper futures, which were unadulterated speculation."

https://www.thebalance.com/warren-buffe ... phy-356436


"Do as I say, not as I do."

[rockstar]

interesting switch given his past statements which the article above goes through some of them.

He has never been against gold miners. Just gold itself as an investment, since gold is not a productive asset.

Is silver a productive asset?

https://markets.businessinsider.com/new ... 1029228443#

Is copper a productive asset?

"According to Roger Lowenstein's book, 'Buffett,' Warren was far more speculative with his own investments than he was with Berkshire's. At one point he bought copper futures, which were unadulterated speculation."

https://www.thebalance.com/warren-buffe ... phy-356436


"Do as I say, not as I do."

I remember an interview with Bill Gates, where he talks about himself and Buffet buying silver.

[knpstr]

Is silver a productive asset?

https://markets.businessinsider.com/new ... 1029228443#

Is copper a productive asset?

"According to Roger Lowenstein's book, 'Buffett,' Warren was far more speculative with his own investments than he was with Berkshire's. At one point he bought copper futures, which were unadulterated speculation."

https://www.thebalance.com/warren-buffe ... phy-356436


"Do as I say, not as I do."

He has arbitraged cocoa beans early in his career. He also bought a map company that had enormous amount of value tied up in just holding equities to influence management to sell off the equities and cash out to shareholders. He has done many "special situations" as he calls them throughout his career. He has done a lot of things that aren't "Buy the S&P" --- which is what his advice is to the average investor.

Warren's Buffett advice to invest index funds is for the person that doesn't have the desire/tempermant to make investing a full-time job, since that is what it takes to pick individual stocks, bet on "special situations" etc.

Again, you don't have to go to gold for "Do as I say, not as I do." Warren Buffett says the average person should invest in the S&P 500 index fund. Warren Buffett buys/sells individual stocks. You made no revelation. And as earlier said, he didn't "buy gold" here anyway.

He also holds investment property too in his personal portfolio (since the copper trade was for his personal portfolio).

Thinking more, I believe years ago he said he would never buy another airline, and he did that too. I suppose a human being is afforded the ability to change their mind if they so choose.

[Nicolas Perrault]

[Berkshire Hathaway is] a nice equivalent if you don't want the dividend tax exposure from a S&P 500 fund.

This is not exact. Running a factor regression on Berkshire Hathaway (BRK.A) from 2000 to 2020, its factor loadings were 0.57 market, -0.47 size, +0.49 value, 0 momentum with a model R2 of just 40% and a 5.20% annualised alpha (unexplained performance). The equivalent figures for the S&P 500 were 0.98 market, -0.17 size, 0.02 value, -0.02 momentum with an R2 of 99.5% and a 0.08% annualised alpha. The large model alpha in absolute value is typical of individual stocks. Berkshire is a stock, not an equivalent to the S&P 500. Like any stock it is susceptible to Enron-style catastrophes, to large unexplained positive or negative performance. Like in any single stock, it would be folly for an outsider to invest in it a sizeable percentage of what they own.

The R2 between the S&P500 and Berkshire over the past 20 years was just 0.51, roughly comparable to that of the S&P500 with the Turkish stock market.

[rockstar]

[Berkshire Hathaway is] a nice equivalent if you don't want the dividend tax exposure from a S&P 500 fund.

This is not exact. Running a factor regression on Berkshire Hathaway (BRK.A) from 2000 to 2020, its factor loadings were 0.57 market, -0.47 size, +0.49 value, 0 momentum with a model R2 of just 40% and a 5.20% annualised alpha (unexplained performance). The equivalent figures for the S&P 500 were 0.98 market, -0.17 size, 0.02 value, -0.02 momentum with an R2 of 99.5% and a 0.08% annualised alpha. The large model alpha in absolute value is typical of individual stocks. Berkshire is a stock, not an equivalent to the S&P 500. Like any stock it is susceptible to Enron-style catastrophes, to large unexplained positive or negative performance. Like in any single stock, it would be folly for an outsider to invest in it a sizeable percentage of what they own.

The R2 between the S&P500 and Berkshire over the past 20 years was just 0.51, roughly comparable to that of the S&P500 with the Turkish stock market.

Using basic regression to do this compare makes no sense.

At the end of the day, an investor cares about their returns. The return BRK provides versus the S&P 500 is not that different over ten and twenty year periods of time. BRK did provide better returns when the S&P was super expensive at the end of the 90s. But since the great recession, the returns haven't been significantly different. There are, of course, years where the S&P 500 did better, and there are years where BRK did better. This is where your regression approach breaks down. You're trying to draw two lines on top of each other and saying they're not the same. You're going to get errors. The S&P 500 provided slightly better returns since the Great Recession, but you're also paying taxes on the dividends received.

Also, BRK owns a lot of businesses. It's not equivalent to most single stock purchases.

[manlymatt83]

Does anyone own BRK.B as part of their core portfolio? I’m mostly in index funds but have thought about picking up 100 shares of BRK just be along for the ride. I guess that would be considered a tilt though.

[000]

And he just dumped a big chunk of it: https://www.fool.ca/2020/11/18/warren-b ... hould-you/

[checkyourmath]

He has 150 billion in cash and lives in his original home. His other homes don't count. I don't need to say more! I think the next thread on him buying pharmaceutical stocks will be more interesting. There is alot of money to be made off the vaccines I am just hoping those firms are in some type of low cost index fund.

[Sasquatch1]

...it's amazing how fast the cost of extracting an ounce of gold rises when the price of gold goes up. The investment thesis is usually "right now it costs 1500 to get an ounce of gold and they sell it for 2000, so if gold goes to 3000 they will triple their margins!". Voila, leverage. But it doesn't seem to work like that. By the time gold gets to 3000, the cost to extract an ounce will be 2600.

Can you explain why the cost of extracting gold goes up with the price? Barrick has 14 mining operations. Why would the cost to extract go up so much in any of these?

I’m going to guess it’s based of the fact gold largely follows inflation. So in theory, when gold goes up, the value of the dollar goes down. It’s those dollars that are spent on operation cost of mining gold. In a very basic and simple way, fuel cost go up.

[Robot Monster]

...it's amazing how fast the cost of extracting an ounce of gold rises when the price of gold goes up. The investment thesis is usually "right now it costs 1500 to get an ounce of gold and they sell it for 2000, so if gold goes to 3000 they will triple their margins!". Voila, leverage. But it doesn't seem to work like that. By the time gold gets to 3000, the cost to extract an ounce will be 2600.

Can you explain why the cost of extracting gold goes up with the price? Barrick has 14 mining operations. Why would the cost to extract go up so much in any of these?

I’m going to guess it’s based of the fact gold largely follows inflation. So in theory, when gold goes up, the value of the dollar goes down. It’s those dollars that are spent on operation cost of mining gold. In a very basic and simple way, fuel cost go up.

Unsure if you are correct to say gold largely follows inflation. From the "Gold continues to soar" thread, there's a post about Paul Krugman's take on gold prices: "gold price isn't driven by inflation, but by real interest rates -- the return on alternative assets".

But let's say, for the sake of argument, that gold does follow inflation. In the scenario of gold rising, that means inflation goes up, which (I guess) means the value of the US dollar (USD) goes down. But many miners, like Barrick, are Canadian, so unsure how the value of the US dollar is relevant. Unless the Canadian dollar normally has the same inflation as the USD?? Just taking a brief look at it, but seems not so much, our inflation is currently much higher than Canada's.

Another thought...Oil is bought and sold in USD (err, at least, I think) which means if the value of USD goes down, wouldn't that make it cheaper for Canadian miners to buy oil?

[anoop]

And he just dumped a big chunk of it: https://www.fool.ca/2020/11/18/warren-b ... hould-you/

That’s a really weird move for Berkshire.

[james22]

Remove Apple from its holdings and you have a very bad ten year track record.

The Wikipedia characterization of ZeroHedge is somewhere between a simple misrepresentation and totally unfair. If you're not reading ZeroHedge as but one source of your daily information, you're missing out on understanding how A LOT of the financial markets work. There are of course articles that are editorialized AND the selection of which articles to list will display an economic bias.

The tactic of labeling it a "far-right" financial blog will prevent half the country from even consuming the discussion and arguments presented within. You might be a follower of Paul Krugman's line of thinking but it would be helpful for you to understand the other side's logic and arguments before you anchor your beliefs.

Correct.

I believe that the bigger point is that Berkshire Hathaway has lagged the TSM and the S&P 500 significantly over the last 10 years. Since 2010, TSM returned 12.86% vs. BRK's 10.80%. Lagging by 2% a year for a decade is generally considered to be bad in the active management space.

Consider how they have both risen in value over that time. The S&P500 has simply become more expensive, BRK less.

BRK owns a lot of businesses. It's not equivalent to most single stock purchases.

Correct.

Does anyone own BRK.B as part of their core portfolio?

30%

[willthrill81]

I believe that the bigger point is that Berkshire Hathaway has lagged the TSM and the S&P 500 significantly over the last 10 years. Since 2010, TSM returned 12.86% vs. BRK's 10.80%. Lagging by 2% a year for a decade is generally considered to be bad in the active management space.

Consider how they have both risen in value over that time. The S&P500 has simply become more expensive, BRK less.

Active managers aren't usually trying to optimize value; they're trying to optimize returns. BRK simply hasn't done that for a long time now. Maybe it will outperform the S&P 500 over the next decade; I don't know. But it's lagged significantly over the last decade.

[james22]

1. BRK is more business owner than active manager (and its private holdings have not been valued by the market as public holdings have been).

2. Value investors expect a lag between voting and weighting (I believe BRK will outperform the S&P500 over the next ten years because the S&P500's price has outpaced its value).