I have to admit, sometimes it is fun to pull a stinkypete.

You do realize that not everything in the universe can be placed into fixed categories... US equity A is not the same as US equity B. They also do not have the same risk factors... For instance Coca-Cola is a US equity, it is also a global conglomerate that dominates the soft drink market... In almost every market on earth. Buffett has a huge position in Coca-Cola.

Also you suggesting what Buffett should be doing is massively lol. I don't care who you are. I really don't.

If you want to make money you usually have to get in early.

This is where I disagree

http://www.berkshirehathaway.com/2010ar/2010ar.pdf

Look at page 4 and page 7.

He's avg more than 20% return for the past 40 years, and outperformed the S&P 500 in every 5 year period.

I don't think it's too far fetched for me to ask BRK to earn 13-15% gain on their book value for the next 15-20 years(obv. this will be greatly dependant on how the general economy performs for this period. I am hoping for a period which is better than 2000-2010, but worse than 1990-2000). If this is true I am projecting to earn somewhere in the range of 10X my money in the next 15-20 years.

from the annual report:

"The bountiful years, we want to emphasize, will never return. The huge sums of capital we currently manage eliminate any chance of exceptional performance. We will strive for better-than-average results..."

Berkshire themselves admit that getting in early was where the big money was. Getting in now, you should only hope for better than average.

Also, your "they have been averaging >20% for 46 years so i think its reasonable to expect 13-15% for the next 20", is a horrible comparison. They admit themselves that their performance pre 1985 should not be used for comparison today.

What bothers me about this is that although I think I agree that assuming Buffett would remained alive and reasonably senile it was a good investment back then it doesn't follow it was a good investment except with the hindsight of knowing he didn't die and remained reasonably senile.

What would really worry me about a big investment now is he is extremely likely to die or go very senile reasonably soon. Not only does the Buffett premium go with him but you might face a non-Buffett over-reaction and whoever replaces him may have something to prove and not be up to it. It will be a dangerous time, squandering money is easy.

This won't happen, but glhf.

Secondly, if you knew BRK would outperform by 5% annually you should put around 120% of your net worth in it.

Those people don't deserve to get rich either. Compared at least to someone who is constantly analyzing and reevaluating in a quest to make better fertilizer.

lol at your reading comprehension skills. res ipsa.

that seems kinda simplistic

My reading comprehension is just fine imo.

It's simplistic because it's true. Always nice when it works out that way.

I was referring to OP, which was plenarily obvious to anyone reading the thread. Assuming I was talking about Buffett just doesn't even make sense.

http://www.youtube.com/watch?v=-lA68...layer_embedded

I am really looking at 3 metrics when evaluating my E(V) for this investment.

1. At a future date when I decide to sell my shares, I am going to get at least the same premium for book value, as I did when I purchased them(20%). Since I can time my exit(don't need the funds, and this premium is fairly volatile), I should be able to sell it at a higher inflated premium, which will translate fairly heavily into my ROI.

2. Relative performance of BRK vs. S&P500. Please look at page 7 of the annual report. They have never relatively underperformed the S&P over a 5 year period. More importantly, their average relative over performance since inception has been 10.8% 1960, and 7.8% since 1980. If I had to put an subjective E(V) on what this relative performance will be for the next 10-15 years, 4-5% average over the S&P seems reasonable.


3. The performance of the S&P for the next 15 years. My estimate(as I explained earlier) was that it is going to outperform the 2000-2010 decade but under perform 1990-2000. My subjective E(V) is a 9.4% gain(the average gain for the past 45 years). However, end of the day, this is not really important.

Since my alternate investment vehicle would probably be benchmarked against the S&P as well, #3 is probably not that important(a rising tide will rise all boats, and vice-a-versa). As long I am able to asses that the BRK book share premium will be maintained(or I'll be able to exit some at a higher premium) and their relative performance is also met.

BRK's premium over book value has been due to their stellar past performance, and people's expectation of that trend to continue. Their relative advantage has decreased significantly over the past few decades. They themselves admit that their performance will not be as good in the future.

This premium over book value is much lower today than in the past.

why don't you expect it to continue to decrease in the future?

The book value grossly understates their true intrinsic value, this is further explained in their annual letter. I do expect the book value to not trade as high of a premium in past(they have traded above 2X book), but I would put a very small % chance that the market value=book value even once over the course of the next 10-15 years.


I'm not gonna try to rationalize the "irrational exuberence" of the markets, but the two major factors I have to my advantage are that I most probably won't need the funds for any given reason in the future, and I have patience.


Hypothetically BRK can continue to trade below my purchase price of 20% premium to book for the next 10-15 years 99% of the time, but I am able to find one day where it trades above my 20% premium cost and then I sell my position at that exact time, then I would have made money on the book premium.

omg this thread is such craptastic crap.

why dont you look at how BRK calculates book value and see where there might be upside - for instance, how do they account for their insurance businsses?

since all you want to do is focus on the 'premium' over book - maybe you should actually learn how they calculate book value.

hint - i really doubt BRK ever traded near 2x true book value in the last 15 years.

+1 to Yowserrrs

I know they understate their book value, and fact that they do so, only makes the chance that this premium to deflate a lot more less likely.


Depending on who you ask, which accounting standards your using, how you evaluate goodwill, where you are living in this world, everyone will reach a different value for BRK book value.

As long as he is consistent on his methods to arrive at his book value over-time, this is a lot more important to me.

And do u know this to be the case?

Hint: book value is the sum of about 2 million assumptions.

Why don't we do this - I'll tell you that for most people this is a decent play. Youre investing in some good businesses that'll beat most mutual funds though prob not by 5% or more. It also appears to be unfairly distressed of late bc of Sokol.

So lets say youre making a good investment and leave it at that.

This is like the first business thread ive read but isnt including stats from the 60s really misleading

puttin gall your money in one basket and then some doesnt seem that smart. Risk management and all.

To base your decision on an investment for future performance based on past results is a recipe for disappointment.

Why do people blindly say this over and over. People frequently put a disproportionate amount of their worth on an asset. Be it their own home or their own business, own poker bankroll, it seems acceptable.

Most self-made millionaire/billionaire, very frequently have a huge % of their worth in their primary business

When I do it with BRK all of a sudden it's very bad risk management

BRK always maintains a mountain of liquidity to weather virtually any conceivable major downfall/risk.

Instead of simply calling it "gambling" or "bad risk management", take a very close look at BRK, and try to allocate a % that my 10-15 year plan will go terribly wrong by means of projected E(V) and S.D.