Quote:
Originally Posted by Monsieur
Just my view of diversification..
There are many types of diversification,
OP (to my understanding) did not diversify the buying of shares over time.
BRK.B owns many other businesses so the investment IS diversified geographically and in different business sectors.
Yet BRK.B is a single company so the investment is NOT diversified in a sense that should BRK.B plummet it would cripple (60% net worth loss) the OPs financially. (Enron, Maddof, Berlin wall, Lehman Brothers, etc.)
In theory, I see the point your making.
I did not buy much stock over time, and bought it all over a course of 1 month, and averaged out my price at 20% premium to their published book value. Today my securties are worth less than what I paid for it, but that doesn't bother me much.
With regards to diversification, total possible downside, I offer my approach below. This is not all theoretical, and has some flaws in it.
I am looking at the price fluctuations of it's book value published each year by BRK, and then the fluctuations on the market premium to that book value.
With regards to the book value published by BRK, they drastically under-represents it's book value compared to it's true intrinsic value, and the market price should reflect a premium on the published book value that for years to come. I really don't see market price=published book value for the next 10 years(even though it is very close right now). Even if it does, I don't see is sustaining those levels for very much time. This assumption is very subjective. But due to this belief I have, I think I have very limited downside at these levels(20% premium I paid), even more so than investing this in a S&P index fund.
Second, the fluctuations on the book value over the past 40 years have a lower variance, than S&P 500 fluctuations. Parlaying the above analysis against each other, allows me to believe I have fairly limited downside, with the E(V) for much bigger gain than the S&P for years to come.
Last edited by discostu940; 06-22-2011 at 04:03 PM.