Here's my logic

The book value of a class A share is $97,062 at the end of 3/31/2011
The book value at present day(may 20th), my conservative estimate would be $98k-99k.

The current price of the class A share is $118,045


http://seekingalpha.com/article/2552...ok-value-basis

That article shows historically the premium berkshire commands over it's book value(as their collection of companies consistently outperforms the market, they do deserve this premium, and will command something of the sort in the future). Over the past 40 years, this premium averages at 63%.

This means, that Berkshire is trading at 20% premium over it's book value, this is ridiculously cheap relative to it's past history.


There was a scandal with with David Sokol, and Lubrizol. And then there were a few higher insurance losses this year as well, due to earthquake in Japan, and floods in new Zealand/America.


Both these are very short term problems, and the collection of fantastic business berkshire/buffett owns will should outperform the greater S&P(conservatively by 4-5% compared to S&P500) over the next 5 years. In addition, I guess you can expect the premium to book value, should go back up to 30% range in the future.


A summary of my investment

1. BRK book value will probably achieve atleast 5-6% better than the S&P500 for the next 10-15 years and/or BRK will achieve a 14-15% average gain on it's book share yoy for the next decade.

2. The premium when I sell my shares will need to be atleast 20%(fairly confident this will occur) for the gain in book shares to translate to my ROI. If i do feel like Berkshire gets a very rich valuation over the next 10 years at a given point(perhaps it may go 1.8X book), I can always sell out at a probably big overall gain. If it falls even further(which I think is more unlikely)

3. Defensive, Low risk exposure to American equities. BRK has a collection of businesses that produce ridiculous ROI's on the whole which is then mitigated by the fact that they hold 40B in cash or cash equivalents. This huge cash holding does come in handy when things don't go according to plan. During the 2009 huge downturn, BRK was a supplier of funds to 2 of America's finest institutions(GE and GS), when those companies only other options would have been to turn to the government. This in itself says something. My own biased estimation for a company like BRK to get into serious trouble is less than 0.5% because of this cash reserve they always maintain(the figure is pulled out of my ass, please don't make much of it). Even the worst insurance years of Hurricane Katrina make up a tiny percentage of this figure.


4. This being the biggest advantage. I get to invest in this company, which request a total of 5 clicks on my computer, and then never have to do anything hands on again for the next 5-10 years. I am watching people constantly trading, monitoring tickers, doing a ton of analysis on different holdings, and compared to a good chunk of them(I believe) I believe I will achieve a higher return than others over this 5-10 year period.

Just a thought,

Would like to hear some feedback

Discostu

Do you really think you deserve to 'get rich' by just clicking 5 buttons on your computer and then doing nothing? Vs. the people who day in day out study market conditions, constantly re-evaluating and analyzing many different companies?

Buffet is very old and the company is a lot bigger than it once was.

I think its easy to see how a Berkshire with a 15 year younger Buffet at the helm, and much less money that it would need to invest in any given business to appreciably improve the company's worth/earning power could command a higher premium to book value than it does now.

As far as buying businesses he can't even waste his time looking at anything under prolly 3 bilion dollars or something, and the thinking is that its easier to buy $800 million dollar company at a great discount than it is to buy an $8 billion company at a great discount.

I own some of it, and even posted in the ask DesertCat thread why I shouldn't do what you just did.

Fair enough, but I am benchmarking his performance to the greater S&P500. Berkshire Hathaway is a very small % of this. Although they are much bigger in size, I am not looking for the 20%+ gain he has offered over the past 40 years. But I am looking for them to beat the market by 4-5% on a yoy basis. Compounded over time, this will add to a huge amount.

10% return yoy over 10 years = 259% gain
15% return yoy over 10 years = 404% gain

as you move forward in time, this gain differential just increases.

BRK collection of businesses on the whole do consistently outperform the S&P500 too.

Diversification is the one true free lunch in finance -- Cliff Asness.

Before I go onto arguing against diversification, I'd like to state that BRK has a number of interests in manufacturing, finance, retail, insurance, transportation, energy. They are very diversified within themselves.


But please explain to me what benefit does diversification gain??

When you run your own business, people are very infrequently diversified(they have a huge % of their net worth in their business).


Middle class families all around the world, often put 60% of their net worth in their house. Many of them can easily rent a home and allocate those same funds in productive assets which can exceed the gains from owning a home/land.


Today, on 5/20, I get to partner with a company who has a 40 year proven history of seeking the best productive assets, and consistently providing above average returns at a dirt cheap valuation for the firm.

I'm all in

Amazing how you posted so much crap and didnt bother to mention by far the most important metric which is where BRK is trading relative to its current book value as of today.

That said, you can ignore everyone else. You are getting immediate diversification. Of all the funds available to retail investors to go all in on, this is certainly one of the better ones.

didn't he cover this in the first 4 lines of his first post?

are these examples supposed to show that its better not to diversify?

1. Just because lots of middle class families don't diversify, doesn't mean its optimal.
2. Most small businesses fail - and all those people who pour their life savings into it go busto
3. Your rent/mortgage comparison sounds more like a term/whole life insurance strategy of instead of getting whole, get term and invest the difference. This argument doesn't necessarily make sense for mortgage/rent since renting isn't necessarily cheaper than paying off a mortgage, so all the equity gained isn't necessarily money not invested, it could be money that would have lost to rent anyway.

He gave the 3/31 value. Did he not describe losses in the insurance business that happened subsequently?

I'm not saying the premium isn't close to the figure he describes but since the entire thesis is based on premium, we should be using the most current figures possible.

That's your problem

Where is the remaining 40% of your net worth inevested? You can probably realize higher returns while lowering your risk if you worked some bonds into your portfolio.

I don't know the most recent valuation, as this information is released every quarter. I am just a retail investor but my best guess as to the present day valuation is $98,000-$99,000. The $118,000 class A share is a 20% premium over this.

my mistake, I thought you were saying he didn't talk about it at all, i didn't notice the dates were old.

What type of bonds do you suggest? How do I get more information about them? How will the lag on tax over time effect my ROI over putting it in BRK holding it for 15-20 years and just paying a one-time capital gains tax? How much of a better return do you think you will get than BRK(how do you calculate this)?


25% of my worth is in an Indian manufacturing plant making auto components(I'm first generation Indian)
10% of my worth is in primary residences in NY and Bombay
5% is in cash/cash equivalents.

My family had some prime real estate in Bombay, which was purchased by them in 1960's and 1970's, and since, the prices have skyrocketed and we have just liquidated them.


I was stuck on what I should do with the funds, and finally I decided to ram it all into BRK, while using the gains from my manufacturing unit to provide for my regular monthly expenses.


I have done a lot of study on BRK, and almost everything about the firm completely reassured my premise.

you have so much risk here it's ridiculous. the only explanation from a portfolio standpoint is that you like to gamble.

Instead of constantly battering me about how dumb it is not to diversify, please quantify your perception of my risk.


What is my % chance in risk to ruin?
What is the % chance that I will end up with a much inferior gain than what I am hoping projecting?


Can you explain to me(in poker terms) your projected E(v) on this so called gamble and assign a Standard Deviation on it on a 1 year projection, 5 year projection, 10 year projection???



These are very subjective questions, but at least to me this just does not appear to be very risky, and it exposes me to get great gains in the future.

You can't be serious. Are you really suggesting that a holding company with a portfolio as solid as BRK's isn't a diversified position? The idea that there are better value picks out there is probably correct, the idea that Buffet is old and might not see another decade is also probably correct, the idea that even the oracle of omaha can't deliver the kind of returns he's had historically with that much money under management is also correct...

But you're going to go after diversification? Seriously?

What happens when buffett dies.

Wow. Not really. If you own 500 different stocks the average annual return from investing in teh stock market is roughly 10%. The statistics say the chance of any year's return falling between -8% and 28% are roughly 2/3. The other 1/3 basically represents the possibility that you see something really strange- happen to the whole market. If there are as few as 8 stocks in your portfolio you can expect to see -10% to 30% again 2/3 of the time.

I just directly cribbed that from Joel Greenblatt and it's absolutely NOT taken out of context. That was literally his point- diversification for the sake of diversification isn't always the best choice. BRK owns a very nice portfolio of excellent companies that will at least mostly weather any coming storm at least as well as the market as a whole. Saying that he's exposed to more variance than an index fund is simply wrong.

Buffet himself said in one of his more recent letters that he expects to underperform the S&P 500 in good years and overperform the S&P 500 in bad years. The reason for this is obviously that his company owns a lot of very stable property that doesn't tend to move all that much. (except upward lmao)

And there's the rub with this strategy. Seriously.

To all of you who are over 40 and had money to invest in the late 80's to early 90's... I hate you how did you not put your cash with buffett? All of it? The man had a hell of a track record at that point- it was pretty freakin obvious that he was a once in a century phenomenon at that point.

You have a great partner

isn't hindsight just the best?

you folks realize that he has 60% in US equity? he has a ton of systematic risk he isn't being compensated for.

of course it matters how much is overall capital is. if he has significant enough amounts, he should be in some non-correlated alternative investments. even if he doesn't, he should still diversify across asset classes, as well as diversify within equity.