No. of Recommendations: 7
I didn’t say the S&P. A value-weighted strategy. The kind of thing Jim keeps dreaming up, on a bigger scale. A mechanical strategy. Index in quotes.
I'm not sure it's a thing that works well at scale. Walter Schloss apparently managed good results with a diversified portfolio, I've heard typical positions around 1-2% of portfolio, larger ones up to 3-5%. His clients beat the S&P by about 5%/year for around 40 years, but the numbers weren't in the hundreds of billions, and market valuation levels were much more dispersed back then.
It's tempting, but would it work? e.g., deploying half the capital with a shotgun approach in "reasonably good" firms, merely skipping those in industries with obvious problems for long term profitability prospects. Mathematically, merely avoiding some fraction of really big losers can give you a meaningful edge. The other half would still be handy when an elephant comes along. Berkshire needs a 40 foot tall elephant at this point, and those are scarce, so maybe head office need only be prepared for 20 foot ones?
The question is whether that would be more or less good for value per share compared to paying a relatively rich price for share buybacks. Do shareholders really want to own more of BHE? Tough questions.
Jim
