No. of Recommendations: 24
The basic assumption of value investors - that people will one day wake up and start assigning prices based on deterministic future cash flows - is flawed.
It has never been true in the history of stock market. Prices have always been decided by half hype and half reason.
I guess it depends on your definition of value investing.
I certainly wouldn't use that one, which seems rather odd to me, so I wouldn't come to the same conclusion.
The value of any purely financial instrument is the present value of all future distributions, nothing more and nothing less.
It's a specific number rather than any opinion, though it's not known with precision in advance.
Value investing is just paying less than that number. If you hold for a long time, you are guaranteed a profit.
(If you pay more than that number, the only way you can make a profit is being able to sell to a future greater optimist--in which case future market prices do matter a lot)
A value investor, thus defined, doesn't need anyone ever to agree with them. You don't need future stock prices to reflect your opinion about the value.
You get ownership of the future earnings and distributions, so you can just sit and wait.
Mr Market might make you a great offer for your equity from time to time in future, which is pretty likely, but there is no strict need for it: you can just sit on your duff and get the future distributions.
Berkshire's style of investing is just buying as many large streams of future earnings as they can, at the lowest purchase price, with the highest reliability and longevity they can foresee.
That's what all the investments have in common. It's enough.
Sometimes the expectations of the future earnings will be too high (or too low), but the average should be OK if that's what you're aiming for.
Does Berkshire own some duds? Sure, nobody's perfect. But the reasoning was the same for all of the purchases.
How has BRK stock portfolio done compared to S&P?
Lately? Trounced it, by being overweight Apple.
A long time ago? Trounced it.
In between? Not so much.
Jim
