Please be mindful of the tone of your posts, and avoid using tone that might be perceived as aggressive, confrontational, or dismissive. Instead, try to use a tone that is respectful, friendly, and supportive.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 10
With the S&P currently selling at a trailing P/E of 23 and 3-month T-Bills yielding 5%, Warren's recommended portfolio of 90% S&P 500 index fund/10% short term treasuries looks to me to be severely out of balance. While 90/10 would be fine for a 30-year holding period, it's far to heavy in stocks for a 5-year or 10-year holding period. I would say that 10/90 might be better for five years.
On the other hand, for a 5-10 year portfolio consisting of Berkshire Hathaway stock and 3-month T-Bills, then 80% BRKB/20% T-Bills might be appropriate because, unlike the S&P, BRKB is fairly valued.
A Kelly analysis that I read s few years ago concluded that if stocks were expected to outperform T-Bills by 4 percentage points, then a portfolio of 100% stocks and 0% T-Bills would be about optimal. If stocks were expected to outperform T-Bills by 3 percentage points, then a portfolio of 80% stocks would be about optimal; 2 percentage points, 60% stocks; 1 percentage point, 40% stocks and 0 percentage point 20% stocks (or something like that. I can't find the paper now). My guess is that over the next 10 years stocks will return 3% to 4%, BRKB 6%-7% and T-Bills 3% to 4%.
What allocation would you say is about optimal for a 5-10 year portfolio consisting of the S&P 500 and T-Bills and for a portfolio consisting of BRKB and T-Bills? How about for a three component portfolio consisting of T-Bills, BRKB and all of your other stocks combined?
I think about this all the time, but the older I get the less certain I become about my proper allocation.
No. of Recommendations: 7
Here's the paper on the Kelly criterion.
https://sites.math.washington.edu/~morrow/336_18/2...After several pages of math a simple result is found at the bottom of page 8. According to this analysis, for a portfolio of stocks and T-Bills the optimal fraction of stocks is
f = (expected return of the stock market - expected return of T-Bills)/(standard deviation of stock market)^2
The year-to-year standard deviation of the return of stocks is about 0.2, so the result is
(expected return of stocks - expected return of T-Bills) ---> optimal fraction of stocks in the portfolio
4 ---> 100%
3 ---> 75%
2 ---> 50%
1 ---> 25%
0 ---> 0%
No. of Recommendations: 7
What allocation would you say is about optimal for...a three component portfolio consisting of T-Bills, BRKB and all of your other stocks combined?
OK, I'll go first
Right now my long-term living expenses nest egg is at ~50% BRK and ~24% each laddered T-bills and all other equities, with ~2% cash*
To paraphrase Sir Winston, I view it as the worst possible allocation, except for all the others.
I sleep at night.
--sutton
(*Plus another 2-3 years' living expenses buried under various other rocks e.g. iBonds)
No. of Recommendations: 13
Inherited 13 stocks in 1975 from deceased parents. I was in my teens the trust became accessible at 30. Never volunteringly sold any of them and still own most along with several spin offs. Two were terrible outcomes, one to basically nothing. Some bought out, etc., etc.
Have bought about 250 stocks since and basically you can say I've never sold anything. While for the hard core value culture that's here on the board this type behavior may seem odd, in my world it was the norm from grandparents to grandchildren to never sell your stocks. Never-ever! Commissions on a $10k trades long ago were hundreds of dollars, as much as $500 for an over-the-counter bank stock.
Largest in order:
40% Berkshire owned for mutiple decades beginning with less than what would buy half a Jeep (because I wanted one!)
40% AJ Gallagher owned since 1994
Coke for decades
Pepsi for decades.
Norfolk Southern been in the family for 83 years, I inherited from my grandmother who outlived my parents
Lowe's owned for about 30 years, my family was in multiple businesses (still are) and builders supply is one
Brascan (the Brookfield yard sale now) for decades
Markel bought at the IPO, my wife is from Richmond, a CPA who once worked for Markel-everybody in Richmond bought MKL
Mondelez residue from buying Cadbury in the year 2000- in 2000 Cadbury could be bought for 8 times earnings all day-every day. I had some forced sales (buyouts) and I bought with every penny I could gather.
...and a slew of other stocks bought in tiny amounts in the family businesses and my and my wife's 401K's. Some are screaming successes, some basically pay wages to employees for all I know.
Never bought a bond in my almost 69 year life...and never will.
No. of Recommendations: 5
Fascinating story, dealraker. As I'm sure you know, Warren said that the 90/10 portfolio only contains short term treasuries so that one doesn't have to sell stocks when stocks are down. It's not because he thinks that short term treasuries are a particularly profitable investment. Long term, stocks are expected to return inflation plus 6%, with 3% inflation. T-Bills are expected to return inflation, so holding any T-Bills reduces return. It's the near term, the next 5-10 years, over which I think that T-Bills will outperform the S&P, but not outperform BRKB.
No. of Recommendations: 2
didnt inherit anything,but here is my allocation ,
60 % property (all non revenue generating , mix of homes and land) 1/3 in europe.
45% brk
5% cash and ibonds and stocks (semiconductors /oil and gas.)
so my liquid assets are very overweight in brk. every so often, I juice my BRK with gains in semicons etc , its cyclical so one has to wait a while, but over the years its purchased e my BRK )
my Brk is my retirement. been building it since around year 2000
my property is my lifestyle wants.
i hedge currency by having property abroad as part of this , in EURO.
my finacial advisors have all been shocked over the years at my allocations, but every time I take one on, they lose me money , and charge me for the pleasure , so last 10 years I just did it myself.
superficially it looks like a carzy portfolio, and I am aware it is pretty exposed, but it has worked very well for me.my hedging in euros (previously pounds sterling, was my possible " go home money"
GLTA ,
No. of Recommendations: 17
I realised back in the 90's, when I came to USA, I had no clue about stocks, markets, taxes or investment. I watched many colleaugues and friends get wiped out of their homes in tech downturns. I also had no financial background , only econ and poli.sci.and tech So I went back to schoolnd took my late husband with me (electrical and computer engineer, we probably took the most notes in classes. it was great and fun too. we learned a lot , and the rest is history.
I did once write to Warren by email, and he personnaly answered me. From that moment, I knew he was my retirement investment.
No. of Recommendations: 3
DW and I are in our mid-70s. Approx. 40% of our net worth is in our personal real estate, which generates no income but provides much pleasure. Of the balance, we're currently allocated approx. 20% equities and 80% CDs, Treasuries, short-term money market, and cash. We rarely exceed 40% equities. BRK is our single largest holding, and that's been the case for at least the past decade.
An annuity and our Social Security provide 80% of the annual income we require. Life is good.
No. of Recommendations: 3
"20% equities and 80% CDs, Treasuries, short-term money market, and cash. We rarely exceed 40% equities. BRK is our single largest holding, and that's been the case for at least the past decade."
You may want to think about your goals for passing along generational wealth - either to charities, relatives or both.
Inflation may be sticky and being 80% in CDs is eroding your wealth even if you don't need it.
No. of Recommendations: 7
The Berkshire forum(s) are (in my 25 plus years of participating) always mostly the culture of:
A) market is drastically, just damn stupidly, overvalued
B) you must hold a lot of cash and some Berkshire
Always a strong popular opinion, and almost never anywhere close to being correct.
No. of Recommendations: 12
Inflation may be sticky and being 80% in CDs is eroding your wealth even if you don't need it.
I didn't say "80% in CDs," as you can see. In any event, the CDs are averaging just under 5% yield. Most of the rest of the balance is in money market funds paying 4.8%, and I can move it into attractive equity investments with 1-day notice. I'm finding attractive opportunities to be scarce these days.
Happily, Simpson Manuf (SSD), which I noted here (well, in the old TMF site) some months ago hit a 52-week high today. General Mills (GIS), which I also noted here to the sound of crickets, also trundles along nicely. And I'm happy with my stakes in V, MA, GOOG, and other usual suspects.
In any event, my wealth is hardly eroding. It's grown in real (inflation-adjusted) terms in the decade since I retired. I know what I'm doing, and what I'm doing fits me well, even if may not fit you.
Cheers.
No. of Recommendations: 12
A) market is drastically, just damn stupidly, overvaluedThis one is very popular and currently quite defensible for the US cap-weighted market.
B) you must hold a lot of cash and some BerkshireDon't ever remember hearing that one. I hear it the other way around: hold a lot of Berkshire and some cash.
That's what I do. Plus some index funds.
It's interesting (to me) that over my 24-year investing career it probably made little difference whether I put money into Berkshire, like I did, or into an S&P500 index fund, like Buffett has recommended.
24 years BRK.b vs SPY:
https://www.portfoliovisualizer.com/backtest-portf...Not much in it. Slight advantage Berkshire.
Going forward, well I think Berkshire has a better return expectation, but I've thought that for 20 years...
No. of Recommendations: 19
A) market is drastically, just damn stupidly, overvalued...
That might be stating things a bit strongly.
As has been mentioned on the board, and is well known and indisputable, is that the broad US market has in recent years generally been drastically overvalued...compared to historical norms.
But the future is uncertain. It might get more expensive, or cheaper. Future "normal" may not resemble past "normal".
All we know for now is that the earnings yield is pretty low.
Jim
No. of Recommendations: 1
I understand the S&P500 Index is overvalued but the Nasdaq QQQE is only up 24% from where it was when it was considered a fair (not a terrific) buy. I'm hesitant to put new money into anything other than BRK but that's been my problem for decades.
Schwab guidance suggests MA or V being better choices than BRK because (get this!) stability! Um, yeah, right! (Guess they got Warren/Charlie's age on their minds?)
SD
No. of Recommendations: 11
I think we just said the precise same thing. Again, the broad assumption...the one that gets all the likes...is that the market is over-valued while Berkshire is undervalued.
I'm 40% in Berkshire and this has held somewhat steady for decades now. But the other stuff in my yard sale has done better than Berkshire for the last 20 years.
Just stating facts. Like most here I am continually in the "Berkshire is undervalued; the market is over-valued camp. But on a rational board and discussion it should be at least considered that we probably state and think things to the point of making us biased, and probably not very accurate. Those like clicks...
Remember over on the Saul's Discussions the outcome horror of 800 likes posts is obvious. We here are maybe a tiny version at times? Well, maybe. But of course far less so. People here seem to go upwards to the right quite methodically, and that's why this board is a good thing in my opinion.
No. of Recommendations: 3
Happily, Simpson Manuf (SSD), which I noted here (well, in the old TMF site) some months ago hit a 52-week high today.
Up 11% this morning. As I'd said previously, it's right in Berkshire's wheelhouse.
