How is Berkshire Hathaway stock NOT a better investment than the index?

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alex123711
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How is Berkshire Hathaway stock NOT a better investment than the index?

Post by alex123711 » Sat Jan 11, 2020 8:33 pm

Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?


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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by koala2 » Sat Jan 11, 2020 9:18 pm

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by financeperchance » Sat Jan 11, 2020 9:20 pm

I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by mhadden1 » Sat Jan 11, 2020 9:24 pm

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever
Well, for one thing, that last part won't always be true. Even Mr. Buffet would likely admit he is a lot closer to the end of his career than the beginning.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by nedsaid » Sat Jan 11, 2020 9:27 pm

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
Well for one thing, conglomerates tend to destroy rather than enhance value over time. The total tends to be less than the sum of its parts. Berkshire-Hathaway is the exception, Buffett has generated synergy with his collection of businesses within his company but history suggests this will not last. My prediction is that eventually B-H will be broken up. Lots of ego in management, my best guess is that Buffett's and Munger's successors will not be content to leave well enough alone and will tinker. Management gets bored and figure that they have to do SOMETHING. Eventually what Buffett and Munger worked so hard to build will get screwed up after both are gone. Just human nature and egos. As they say, nothing succeeds like successors.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Nate79 » Sat Jan 11, 2020 9:27 pm

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
So you are a proponent of active instead of passive?

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by WildBill » Sat Jan 11, 2020 9:35 pm

Howdy

Understand that any individual stock contains idiosyncratic and asymmetric risk. Example: Berkshire is heavily biased to insurance, which is a risk management business. What happens if they misperceive and misprice some risk, or have somebody doing something stupid off balance sheet? You won’t know until [something bad happens --admin LadyGeek].

Check AIG - an insurance conglomerate whose stock went from $125 to $0 because some yahoos in an obscure division got up to off balance sheet shenanigans.

Ask me how I know 😀

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Eric76 » Sat Jan 11, 2020 9:48 pm

financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
I wouldn't want to own Brk specifically because of the cash drag.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by moptop » Sat Jan 11, 2020 10:22 pm

They have a lot of free leverage with their insurance float which is nice...kinda like a free lunch

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by illumination » Sat Jan 11, 2020 10:56 pm

Well one reason is just the element of the "world's greatest investor" engaging in market timing. Berkshire is sitting on an enormous cash pile, something like $128 billion to wait for a good opportunity. Buffett missed an incredible run up in stocks over the last several years waiting for a sale. Imagine if you invested in an all stock index and it would switch part of it to cash to wait for a better opportunity and possibly wait for years. It might work out great if it's timed perfectly, but all the data suggests this will most likely be a drag on returns.

Buffett also (usually) invests in thing he understands and has largely avoided tech (except recently). Which means he mostly missed out on FAANG and other tech stocks huge run up. I don't want an investor that is missing out on huge growth because he doesn't understand technology companies.

Buffett joins all sorts of names that have legendary names in finance, I just think his time has come and gone and he's more of a figurehead now and his company has gotten so big it's just going to have index like returns. I would have loved to have gotten in on Berkshire 30-40 years ago, but I could say the same for a number of companies like Johnson and Johnson, Coca Cola, Altria, Apple, Procter & Gamble, etc.

To me the biggest advantage of Berkshire is it doesn't pay a dividend, I would love an ETF that could say be a total stock ETF but absorbed the dividend into share appreciation.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by JoMoney » Sat Jan 11, 2020 11:15 pm

-BRK is uniquely exposed to catastrophic risks through its insurance and reinsurance (as Buffett himself has cautioned).

-BRK's assets have a big chunk in other stocks, buying BRK you pay a book price multiple markup to own those shares that you could buy directly without the price multiple layered on top. BRK has to pay taxes on those stocks dividends at a corporate rate likely higher than most individuals.

-BRK's performance hasn't been anything special for quite awhile, but as a single stock has had much higher standard deviation.

-There's more liquidity available to buy/sell shares of the index

- I can't buy individual stocks in my 401k other than my employer, and even then I'm limited in the amount.

- If I buy the index, I already have a reasonable allocation to BRK (it's in the top 10)
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by KyleAAA » Sat Jan 11, 2020 11:24 pm

Well if you're proposing it as an investment, I would say the burden of proof is on you to demonstrate it's a superior investment going forward.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by sf_tech_saver » Sun Jan 12, 2020 12:04 am

The real problem with the question is suggesting that one can ever be sure what the 'bad' stocks are and root them out of the index.

If you think anyone was smart enough to know that Apple would go from being one quarter from bankruptcy to ~the most valuable company on earth then you get to make that statement.

I also remember when airline stocks were the obvious dogs of the public markets and now they have been relative stars with the new fee structures.

There are massive forces acting on any public company that attempt to turn it from a dog to a star if it struggles long enough. Management will change, the industry will consolidate--that is the goodness public markets enforce on CEOs and boards at all times.

The only real dog stock I can think of is IBM -- which BTW, Mr. Buffet attempted to digest and spit-up :)
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by bhsince87 » Sun Jan 12, 2020 12:13 am

Easy: concentrated risk.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by watchnerd » Sun Jan 12, 2020 12:28 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
How much of your own money are you willing to bet on this hypothesis?
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by privateer79 » Sun Jan 12, 2020 12:38 am

I will confess to having swapped in some BRK-B to replace SPY/VTI in my taxable portfolio.

its relatively broadly diversified, pretty well correlated to equities, but the real motivation is no dividends. I'm in the "good" earning years of my life and even dividends are getting hit at 19.2(fed)+10(state)... I think I can do much better roth converting after I convince the wife to retire to florida at ~50 :)

or maybe I'll hold them until I die and they can be stepped up.... gotta have something to look forward too :beer

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by flaccidsteele » Sun Jan 12, 2020 3:36 am

Eric76 wrote:
Sat Jan 11, 2020 9:48 pm
financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
I wouldn't want to own Brk specifically because of the cash drag.
There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by flaccidsteele » Sun Jan 12, 2020 3:43 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
Buffett says investors would be served just as well buying an S&P fund as his own company’s stock

https://www.cnbc.com/2019/04/25/buffett ... shire.html

“I think this: if you want to join something that may have a tiny expectation of better [performance] than the S&P, I think we may be about the safest.”

All of which raises a question. What is the point of Berkshire Hathaway, if it does not make its shareholders richer than they otherwise could be?

“I think your son will learn more by being a shareholder of Berkshire.”

https://www.ft.com/content/40b9b356-661 ... f350474d62

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Eric76 » Sun Jan 12, 2020 8:38 am

flaccidsteele wrote:
Sun Jan 12, 2020 3:36 am
Eric76 wrote:
Sat Jan 11, 2020 9:48 pm
financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
I wouldn't want to own Brk specifically because of the cash drag.
There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image
They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by watchnerd » Sun Jan 12, 2020 9:59 am

Eric76 wrote:
Sun Jan 12, 2020 8:38 am

They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
You do realize that the top companies in the Total Stock Market index, like Apple and Microsoft, are also sitting on giant amounts of cash, right?

Apple has $245B in cash, Microsoft has $139B in cash, both more than Berkshire.

So Apple has ~25% of its market cap in cash.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by flaccidsteele » Sun Jan 12, 2020 10:18 am

Eric76 wrote:
Sun Jan 12, 2020 8:38 am
flaccidsteele wrote:
Sun Jan 12, 2020 3:36 am
Eric76 wrote:
Sat Jan 11, 2020 9:48 pm
financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
I wouldn't want to own Brk specifically because of the cash drag.
There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image
They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
This doesn’t make any sense, but ok

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by abuss368 » Sun Jan 12, 2020 2:19 pm

Jack Bogle has said that investors should not own individual stocks as the risk is to high. He advised to "don't search for the needle in the haystack. Buy the haystack."
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by heyyou » Mon Jan 13, 2020 12:06 am

BRK has definitely been the previous better investment, but considering manager's age, business size, etc., none of those indicate that BRK is going to continue to be better. So far, indexing has been good enough for my goals to be reached, and its future is still the same. Consider good enough instead of asking for history to repeat at your convenience, which is very unlikely.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by garlandwhizzer » Mon Jan 13, 2020 2:37 pm

Asset gloat has become a big problem for BRK. The exuberant return years of BRK were before its success was widely touted and investor dollars flooded in. In those days Warren and Charlie could deploy a lot of their limited asset base into SC and MC and there was considerable alpha available in all cap weight spaces especially the largely ignored MC and SC spaces. BRK's current asset base is about $790 billon. If you have to invest that much money the only places that have sufficient capacity to absorb it are large cap and mega-cap, the same spaces that are intensely scrutinized by professionals. Significant levels of alpha are rare these days in those spaces especially in the US which is where BRK concentrates. Gone are the days when alpha was abundant and BRK's asset base wasn't so large that a substantial portion of it could be deployed in the MC and SC spaces which at the time very few analysts even looked at. Going forward IMO the expected return of BRK is almost exactly that of the S&P 500 which is why 90% of Warren's wife's money is in the S&P 500 Index rather than BRK. Warren is a gifted value investor and a scrupulously honest and ethical man, a total credit to his profession, but his days of robust outperformance relative to indexes may be over. What BRK is however likely to do going forward is avoiding investing in bubbles, building up cash when stocks are overpriced and deploying it when the market crashes. I don't think we're in a bubble now although this long bull market that keeps on melting up and the increasingly optimistic investor sentiment may get out of hand.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by watchnerd » Mon Jan 13, 2020 2:52 pm

garlandwhizzer wrote:
Mon Jan 13, 2020 2:37 pm
Asset gloat has become a big problem for BRK.
I like this term.

Even if it was a typo. :P
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Boglegrappler » Mon Jan 13, 2020 2:58 pm

Asset gloat has become a big problem for BRK. The exuberant return years of BRK were before its success was widely touted and investor dollars flooded in.
Garland,

You probably know that Berkshire has never raised a dollar from the public since going public through the distribution of the Berkshire Hathaway stock.

So investor dollars have not flooded in. What has "flooded in" has been earnings, and the insurance float that Buffett writes about so often. This doesn't undermine your point, but gives a bit of detail to it. :)

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by 1130Super » Tue Jan 14, 2020 7:56 am

It’s a great stock for a taxable account, no dividends to create tax drag

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Call_Me_Op » Tue Jan 14, 2020 8:00 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
No. A high-quality company is quite different from a company with a high-performance stock.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by hand » Tue Jan 14, 2020 9:27 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
Ooh, like General Electric? What could go wrong?

Disclosure, I do own BRK.B in taxable as a small portion (2%) of my holdings, but recognize and accept that I am taking on single company, and single person(!) risks.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by blueskytoo » Tue Jan 14, 2020 9:04 pm

Although BRK falls a bit short of the S&P index funds, you need to allow for the huge "cash" position they have, which is invested in Government bonds. This does reduce the rate of increase of share price, but eases the declines when the market falls.

Comparing its performance with a balanced fund would be more appropriate, and there it does outperform the market.

Warren and company do find some loosers, including an airline at the wrong time, IBM, and more recently the Kraft Heinz merger. Wells Fargo remains on the "maybe" list.

His loans to bail out GE and others have been incredibly profitable to BRK, but those opportunities are cyclical, and now is not a time to do those deals.

Half a century ago, I had enough assets to buy one share of BRK, when there was only one class. It was appealing, for bragging rights, but the single issuer risk was way out of my league. It would have been way more than all the rest of my money in the market. Hind sight? Good investment, but I do not regret passing. Most of the intervening years are the ones he made the greatest gains per year, but it just was not a suitable risk for someone with as little as I had in the market.

Today, I do have a few "B" shares, but I think of them as a balanced fund, comparing favorably to Windsor or Wellesley.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by abuss368 » Tue Jan 14, 2020 9:17 pm

1130Super wrote:
Tue Jan 14, 2020 7:56 am
It’s a great stock for a taxable account, no dividends to create tax drag
While true there is still a lot of risk.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by mrspock » Wed Jan 15, 2020 3:18 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
Because VOO et al isn’t run by guys in their last inning, and has a giant capital gains liability hanging over their head (single company however large cannot stand the test of time like a broad index fund). Never mind the fact that it remains to be seen if their successors have the same magic.

Pretty simple IMO.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by fredflinstone » Wed Jan 15, 2020 8:13 am

alex123711 wrote:
Sat Jan 11, 2020 8:33 pm
Since it is a company that owns good companies, acquired at good valuations, chosen by probably the best investor ever and has a good track record, being too big is making it harderto keep increasing value, but even with that issue surely it would be better to only own quality stocks than some of the mediocre and low quality ones that comprise the index?
No. Whatever you think you know about Berkshire Hathaway and its "mediocre" counterparts has already been taken into account by the market. Unless you know something that the rest of the market doesn't know, there is no point in trying to play this game.

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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Jack FFR1846 » Wed Jan 15, 2020 9:00 am

I don't buy BRK to beat the market. I do look at it and compare it with SCHB to try to understand how its behaved in the past. In my mind, it's another SCHB/VTI/FZROX/iTOT without spilling all the taxable dividends that I can't avoid. I hold B shares in taxable specifically to avoid dividends. I'm not selling anything to convert to BRK, but new money is buying more. I am sure that not everyone would agree with this strategy. That's ok.
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by deltaneutral83 » Wed Jan 15, 2020 10:06 am

financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
Problem with this is that the next downturn is scheduled for anywhere between tomorrow and 20 years, so hoarding cash can either be a great idea or terrible. Obviously Buffet is better at spotting these types of things than most but it's still a possibility. Anyone hopping on the BRK train from inception through the early part of the century is beating the S&P, and the earlier you invested, the more you're crushing. Even if you exchanged all your S&P/TSM for BRK.B at the turn of the century and you DCA'd over 3 years for example, you'd be up, but if you started three years later in 2003 once the tech smoke cleared (and beyond) it would be about the same I bet. He's actually even with the S&P since the third week of October 2007 which is when the "fun" started in the stock market. So "he does well in bear markets" was not true last time around but was true for the tech bubble in 2000. I can't examine the performance of Buffet's career and think that today and going forward I'd like to invest with him (or more accurately his company) for the next 30 years over TSM.

flaccidsteele
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by flaccidsteele » Wed Jan 15, 2020 10:50 am

I have a little more than 3000 shares of Berkshire Hathaway B shares. I started buying the 90s with my first pay check, but definitely wouldn’t buy the stock today as I now prefer indexing

However, I still haven’t sold any...

TheLaughingCow
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by TheLaughingCow » Wed Jan 15, 2020 11:24 am

BRK has massive liabilities in the form of it's reinsurance obligations. In the event of a natural or man made disaster (Yellowstone volcano exploding, Nuclear war with Russia) Berkshire Hathaway will implode in the same spectacular fashion as AIG did in the GFC.

Of course, an event that size will take most of the western hemisphere with it so equities and bonds would be toast at that point anyway...

Eric76
Posts: 178
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Eric76 » Fri Jan 17, 2020 5:43 am

watchnerd wrote:
Sun Jan 12, 2020 9:59 am
Eric76 wrote:
Sun Jan 12, 2020 8:38 am

They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
You do realize that the top companies in the Total Stock Market index, like Apple and Microsoft, are also sitting on giant amounts of cash, right?

Apple has $245B in cash, Microsoft has $139B in cash, both more than Berkshire.

So Apple has ~25% of its market cap in cash.
At least Apple and Microsoft are spitting some of that cash back to investors with dividends. But, yes, they are sitting on too much cash too.

Eric76
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by Eric76 » Fri Jan 17, 2020 5:47 am

flaccidsteele wrote:
Sun Jan 12, 2020 10:18 am
Eric76 wrote:
Sun Jan 12, 2020 8:38 am
flaccidsteele wrote:
Sun Jan 12, 2020 3:36 am
Eric76 wrote:
Sat Jan 11, 2020 9:48 pm
financeperchance wrote:
Sat Jan 11, 2020 9:20 pm
I have some Berkshire. It's my only individual stock. To me the point of it is not that it will beat the S&P 500 during bull markets like the 2010s, because it won't. The point is that Berkshire has the amazing operating companies and is hoarding a ton of cash, well-positioned for the next recession, whenever that finally comes.

The big risk imo is the capital allocation after Buffett's passing.

I think there's nothing wrong with allocating a certain portion, a small percentage, of your portfolio to Berkshire. There's no other stock I'd say that about.
I wouldn't want to own Brk specifically because of the cash drag.
There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image
They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
This doesn’t make any sense, but ok
Which part doesn't make sense? If Brk has a business necessity to keep that much in cash, it's limiting what they can do with their cash flow.

flaccidsteele
Posts: 187
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Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by flaccidsteele » Fri Jan 17, 2020 8:57 am

Eric76 wrote:
Fri Jan 17, 2020 5:47 am
flaccidsteele wrote:
Sun Jan 12, 2020 10:18 am
Eric76 wrote:
Sun Jan 12, 2020 8:38 am
flaccidsteele wrote:
Sun Jan 12, 2020 3:36 am
Eric76 wrote:
Sat Jan 11, 2020 9:48 pm


I wouldn't want to own Brk specifically because of the cash drag.
There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image
They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
This doesn’t make any sense, but ok
Which part doesn't make sense? If Brk has a business necessity to keep that much in cash, it's limiting what they can do with their cash flow.
And grocers keep groceries, retailers keep clothing and Apple keeps electronic components

It’s good thing that you index

1130Super
Posts: 155
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Location: Minnesota

Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by 1130Super » Fri Jan 17, 2020 9:59 am

flaccidsteele wrote:
Fri Jan 17, 2020 8:57 am
Eric76 wrote:
Fri Jan 17, 2020 5:47 am
flaccidsteele wrote:
Sun Jan 12, 2020 10:18 am
Eric76 wrote:
Sun Jan 12, 2020 8:38 am
flaccidsteele wrote:
Sun Jan 12, 2020 3:36 am


There is no cash drag

Berkshire matches its cash and fixed income portfolio size to its insurance float (insurance liabilities)

Image
They are sitting on $128 billion in cash that is therefore not invested. That's a cash drag. I don't pretend to understand the specifics of the insurance business to know if that cash has a business purpose for sitting there. But even if it does, I want the equity portion of my portfolio fully invested, and not invested in a company that has 20% of its market cap in cash.
This doesn’t make any sense, but ok
Which part doesn't make sense? If Brk has a business necessity to keep that much in cash, it's limiting what they can do with their cash flow.
And grocers keep groceries, retailers keep clothing and Apple keeps electronic components

It’s good thing that you index
Most of the cash is actually short term treasuries. Most Bogleheads would be perfectly fine holding treasuries so why is a company (that’s almost like a mutual fund ) holding treasuries a bad thing?
BRK is about as ideal pick anything in a Taxable account.

1130Super
Posts: 155
Joined: Thu Nov 07, 2019 8:59 am
Location: Minnesota

Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by 1130Super » Fri Jan 17, 2020 10:11 am

TheLaughingCow wrote:
Wed Jan 15, 2020 11:24 am
BRK has massive liabilities in the form of it's reinsurance obligations. In the event of a natural or man made disaster (Yellowstone volcano exploding, Nuclear war with Russia) Berkshire Hathaway will implode in the same spectacular fashion as AIG did in the GFC.

Of course, an event that size will take most of the western hemisphere with it so equities and bonds would be toast at that point anyway...
So are you recommending seeds, bullets and freeze dried food as a % of everyone’s AA

TheLaughingCow
Posts: 63
Joined: Tue Jul 01, 2014 9:41 pm

Re: How is Berkshire Hathaway stock NOT a better investment than the index?

Post by TheLaughingCow » Fri Jan 17, 2020 11:17 am

1130Super wrote:
Fri Jan 17, 2020 10:11 am
TheLaughingCow wrote:
Wed Jan 15, 2020 11:24 am
BRK has massive liabilities in the form of it's reinsurance obligations. In the event of a natural or man made disaster (Yellowstone volcano exploding, Nuclear war with Russia) Berkshire Hathaway will implode in the same spectacular fashion as AIG did in the GFC.

Of course, an event that size will take most of the western hemisphere with it so equities and bonds would be toast at that point anyway...
So are you recommending seeds, bullets and freeze dried food as a % of everyone’s AA
I would consider it smart to have a week or 2 of canned food and bottled water, especially if you live in a disaster prone area like the gulf coast or the San Andreas Fault. But that's about as far as I go with the doomsday prepping

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