Let's show appreciation and gratitude towards each other's contributions on the board.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 2
I came across this Buffett quote from 2014:
"...I believe that the chance of permanent capital loss for patient Berkshire shareholders is as low as can be found among single-company investments".
Likely that's true. Many of us have large portions of our net worth in Berkshire. As single-company investments go, Berkshire is lower-risk, but it is still more risky than, say, RSP (S&P500 equal-weight). And, let's face it, unless you time your buys and sells well, investing in Berkshire hasn't beaten the index for 20+ years.
Example: 2004-2023, adding $1,000/quarter, inflation adjusted, ending balance:
$284,204 Brk.b
$289,087 SPY
$282,702 RSP
https://www.portfoliovisualizer.com/backtest-portf...Your results might vary (I think mine have, for the better). Going forward, though...what to do?
Would you put a large sum into Berkshire in a taxable account? Not a trade, but as a long-term holding.
No. of Recommendations: 3
We would if/when it is priced at an excellent price vs. valuation, although the index alternatives do seem reasonable long-term. We trust the predictability of BRK wrt growing normalized and diverse earnings ($54B/ year), it's leadership/ integrity/culture, capital allocation decisions and feel it will always keep its financial rock of Gibraltar status. Rule #1 has become an even higher priority with age and experience. We trust the chosen leadership beyond WEB and CTM but will be observing closely.
We are in our 50s and have just entered a slow draw down phase but feel sure we will purchase more BRK when it is really 'on sale.' FWIW, BRK is by far our largest equity and our BRK ownership has been 4x that of the index. Would not mind adding more RSP or QQQE if their valuations really fell(>25% or so) from here.
Eager to hear others weighing in on this thread as many of us are navigating in a similar boat.
No. of Recommendations: 6
There are other folks on this board way more qualified than I am regarding investing in indexes.
Our (my bride and I) investing approach is geared around an understanding of Portfolio Theory mathematics (see link below). When only one stock is owned (as seen in many employment compensation situations), there is a high risk of major loss. By equivalently owning two (2) stocks, the risk is cut significantly. A portfolio's "Diversifiable Risk" approaches optimal levels with a 20 to 25 companies holding. The diversifiable risk difference between holding 10 companies versus 20 companies is not all that much, so we have always tended to have 8 to 12 holdings. That said, Berkshire represents about 45% of our public stock holdings, so our portfolio risk profile is mathematically likely comparable to a five (5) or six (6)holding situation. This does not unduly trouble us as we have ownership in a business and also own rental properties. I find it helps to contemplate the total risk involved with our entire collection of ownership situations. That said, I hesitate to buy more Berkshire because we do not want to further increase our portfolio risk beyond where it is now. This has become more of a concern in the past year as Berkshire has increased in value relative to the other stocks in our portfolio.
We have often contemplated having an index type of investment in our portfolio and have not because an attractive single stock situation usually becomes available. My kind of investment situation is a company having the ability to reinvest earnings at an attractive ROE year after year and also having a market capitalization to pretax earnings ratio of 10:1 or less. Berkshire has certainly fit that description in many past instances and commensurately loaded up the truck. Dollar Tree fit that description in September 2021. Markel fit that description in September 2022. I am hoping some others currently on the radar will fit that description some time in 2024 for our available cash.
https://seekingalpha.com/article/151352-portfolio-...All the best,
Uwharrie
No. of Recommendations: 12
Like WEBspired, we're in our mid 50s with BrkA and BrkB comprising more than 80% of family net worth. We began buying in March 2000 and added to the position consistently. We realized the portfolio carried concentration risk but felt the % of cash to mkt cap enabled patience and opportunism when dealing with herd behavior in the market.
The fundamental buying decisions were built on the mix of earning streams from reliable & diverse businesses.
Our understanding of Brk earnings and business strengths/weaknesses has lots of sources, but was in no small measure informed by several of the posters here - the cast of characters familiar to nearly everyone. Those of you getting lots of recommends over the years have very likely helped put lots of kids through school and secured retirements for fellow shrewdites. Again, MY thanks to all the usual suspects.
We've selectively added 600 B shares for retirement accounts in about 10 increments in the last 18 months with a aggregate basis of $297/share. We've tried to act when P/B seemed favorable. Perhaps with some measure of fortune, this was drawn from a 401K equity fund position that went to a GIC at 3% in December 2021. We also used a portion to build 18-24 months of expense time (short term treasuries & money mkt) to allow any corrections to mean revert - again some portfolio concentration insurance of sorts.
We've been thinking about lowering our Brk exposure for years now. This would only be done in the retirement accounts. The index candidates are the obvious target for us, but the relative valuation has not presented the moment for us. We likely would consider doing some of this when we felt we could get risk adjusted earnings parity for our Brk positions. We'll begin drawing down in the next couple years.
No. of Recommendations: 4
We've been thinking about lowering our Brk exposure for years now. This would only be done in the retirement accounts. The index candidates are the obvious target for us, but the relative valuation has not presented the moment for us. We likely would consider doing some of this when we felt we could get risk adjusted earnings parity for our Brk positions. We'll begin drawing down in the next couple years.
This is it for a lot of us, I think. We've done quite nicely in Berkshire and learned a lot along the way. Now we're approaching the drawdown phase, maybe we need a bit more diversification? But the relative valuations (Berkshire vs a suitable index fund) are seldom, if ever, compelling.
We're probably all too cheap. I'd wager many of us could switch to the index and live just fine off the dividends, but where's the fun in that?
No. of Recommendations: 3
For fun I asked the Microsoft Bing AI this:
What are the investment risks of putting 75% of our net worth in Berkshire Hathaway?
That's a good question. Investing in Berkshire Hathaway (BRK.A or BRK.B) has many potential benefits, but also some risks that you should be aware of.
Some of the benefits are:
Berkshire Hathaway is a diversified conglomerate that owns many successful businesses in various sectors, such as insurance, energy, railroads, utilities, consumer goods, and technology. This reduces the exposure to any single industry or market downturn.
Berkshire Hathaway is led by Warren Buffett, one of the most respected and successful investors of all time. Buffett has a track record of delivering exceptional returns for shareholders over the past 50 years. He also has a clear succession plan in place, with Greg Abel as his likely successor as CEO.
Berkshire Hathaway has a strong balance sheet, with $145.4 billion in cash and equivalents as of March 31, 2023. This gives the company ample liquidity and flexibility to weather any economic shocks, pursue attractive acquisitions, or buy back its own shares.
Some of the risks are:
Berkshire Hathaway is a large and complex company that may face regulatory challenges or scrutiny from authorities. For example, it may be designated as a systemically important financial institution (SIFI) by the Federal Reserve, which could impose stricter capital requirements and oversight.
Berkshire Hathaway may miss out on some growth opportunities or trends that are outside its core competencies or circle of competence. For example, Buffett has admitted that he was late to invest in technology companies like Apple (AAPL) or Amazon (AMZN), and that he made a mistake by selling his airline stocks during the COVID-19 pandemic.
Berkshire Hathaway may suffer from a loss of reputation or trust if Buffett or his successors make any ethical lapses or poor investment decisions. For example, Buffett recently faced criticism for his involvement in the failed Kraft Heinz (KHC) merger, his support for Chevron (CVX) over a climate change proposal, and his silence on some social issues.
Ultimately, investing in Berkshire Hathaway depends on your risk tolerance, time horizon, and investment goals. You should do your own research and consult a financial advisor before making any investment decisions.
No. of Recommendations: 15
For example, Buffett has admitted that he ... made a mistake by selling his airline stocks during the COVID-19 pandemic.
Is this true, or another large language model hallucination?
Jim
No. of Recommendations: 4
For example, Buffett has admitted that he ... made a mistake by selling his airline stocks during the COVID-19 pandemic.
Is this true, or another large language model hallucination?
That was exactly my thought and reminded me of the munger quote "If you mix raisins with turds, they're still turds".
No. of Recommendations: 2
I am certainly not aware of any such admission by WEB, nor do I believe he has even hinted at such.
No. of Recommendations: 8
Bing AI: For example, Buffett has admitted that he ... made a mistake by selling his airline stocks during the COVID-19 pandemic.
Jim: Is this true, or another large language model hallucination?
New question: Did Warren Buffett admit that he made a mistake by selling his airline stocks during the COVID-19 pandemic and when was this?
Bing AI: Yes, Warren Buffett admitted that he made a mistake by selling his airline stocks during the COVID-19 pandemic. He told shareholders on Saturday that he had sold all of the company's airline stocks and that coronavirus had changed the business in a 'very major way.'12
He made this statement on May 2nd, 2020
Follow up question: That isn't admitting that he made a mistake, is it?
Bing AI: Yes, it is. He said that he had sold all of the company's airline stocks and that coronavirus had changed the business in a 'very major way.' This statement implies that he made a mistake by selling his airline stocks during the COVID-19 pandemic.
Oh dear.
No. of Recommendations: 1
Follow up question: That isn't admitting that he made a mistake, is it?
Bing AI: Yes, it is. He said that he had sold all of the company's airline stocks and that coronavirus had changed the business in a 'very major way.' This statement implies that he made a mistake by selling his airline stocks during the COVID-19 pandemic.
Your follow up question is spot on: clearly, Buffet has admitted to an error, but it is not what chatGPT says it was. Buffett admitted that investing in the airlines was a mistake, but he has not yet admitted that uncharacteristically selling them at their trough evaluations in the teeth of the pandemic (blood in the streets) was a mistake. In other words, he has admitted to making one mistake (buying the shares), whereas the real error (in retrospect), was selling them.
dtb
No. of Recommendations: 4
Here's the similar message chatgpt gave me:
Warren Buffett has not explicitly admitted that selling airline stocks during the COVID pandemic was an error. However, in his 2020 letter to shareholders of Berkshire Hathaway, he did acknowledge that the decision to sell the airline stocks was a mistake in terms of timing. He stated that Berkshire's position in the airlines industry was a "mistake" and that the pandemic had made it clear that he had been "too optimistic"
This gets it precisely backwards - we are talking about whether selling the shares was a mistake, not whether buying them was a mistake. Admitting that the stock purchase was a mistake, when you have just announced that you have sold them, is a very different thing from (probably later) admitting that the sale was also a mistake.
In retrospect, looking up the stock charts of the 4 airlines (UAL, DAL, AAL, LUV), the mistake is not nearly as bad as I thought it was. Despite hugely increased air travel and very high prices, the share prices are not up that much since the end of March, roughly when the sales were made (I thinkk we only know they were made during the first quarter.) Looking at March 31st, 2020 as a starting point, the 4 stocks are up in the last 4 and a bit years, but only by 87%, 48%, 38% and -2%, respectively, or an average of about 43%, or ... 11.75% annualized, whereas the S&P total return (^SP500TR) is up 74% (19.6% annualized) in the same period. And the tax loss from the sale in 2020 was worth something, too.
Side note: BTW, thanks GPT, you screwed up the first question, but on the second (if the total return is 43% over 38 months, what is the annualized return?), you did a much better job of calculating this than google, and explaining how you (correctly) did the calculation!)
chatgpt:
To calculate the annualized return given a total return of 43% over a period of 38 months, we can use the following formula:
Annualized return = ((1 + total return)^(1/time period in years)) - 1
First, we need to convert the 38-month period to years by dividing by 12:
38 months / 12 months/year = 3.17 years
Next, we can plug in the values and solve for the annualized return:
Annualized return = ((1 + 0.43)^(1/3.17)) - 1 = 0.1175 or 11.75%
Therefore, the annualized return for a total return of 43% over 38 months is approximately 11.75%.
I'm beginning to see where this thing can be useful: it is often much easier to see that a conclusion or a calculation is correctly done if you can see the thinking behind it. In this case, it is easy to see the faulty reasoning in response to the first question, and the correct reasoning in response to the second question. It doesn't have to always be perfect to be useful.
dtb
No. of Recommendations: 0
ChatGPT
"It doesn't have to always be perfect to be useful."
As you say, and carefully vetted.
No. of Recommendations: 2
