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The Rational Reminder pod this week is about Buffett:

https://rationalreminder.ca/podcast/335

“What makes Warren Buffett’s investment legacy so iconic, and how has his advice shaped the world of investing? In this episode, we delve into Warren Buffet's investment philosophy and the lessons he offers everyday investors. In our conversation, we unpack the impact of his investment strategies on the financial world, debunk common misconceptions, and discuss how his strategies have changed over time. We also examine the structural barriers to replicating his success, the complexities of scale and changing market dynamics, and the parallels between his approach and modern asset pricing models…”

I’m not convinced that Buffett’s investing can be replicated using factors and a bit of leverage. Good pod, though. There’s a transcript at the link for those that prefer reading.

Paper discussed in the podcast linked in the OP:

Buffett’s Alpha
https://www.tandfonline.com/doi/full/10.2469/faj.v...

“Buffett’s returns appear to be neither luck nor magic but, rather, a reward for leveraging cheap, safe, high-quality stocks. Decomposing Berkshire’s portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett’s returns are more the result of stock selection than of his effect on management.”

Thinking about Berkshire after Buffett's departure, how about:
- Run a quant fund of the S&P500 re-weighted on value, quality, profitability and other measures.
- Use cheap leverage from insurance float to juice the returns (meaning actually invest much of the float).
- Buffett himself designs the quant criteria (before he leaves, obviously)?

Pros:
- Doesn't need Buffett's investing genius to manage it.
- The S&P500 is $50 Trillion. Top 100 companies are all > $100 billion. Berkshire's size not *too much* of a problem.
- Fairly safe from manager error. A legitimate concern post-Buffett is that Berkshire could make a very large acquisition which turns out badly.
- Liquid if a truly wonderful opportunity does come up (contradicting the point above).

Cons:
- It won't shoot the lights out.
- Got to be more than that...

With leverage, could this scheme achieve a satisfactory, even market beating result?
Terrible idea?
Buffett's plan all along? (lol)
Or they could just take Buffett's advice and create an S&P500 index fund...

I have long thought we should just buy the index within Berkshire and forget about it. T&T haven’t shot the lights out although Ted probably got Apple on Warren’s radar and he deserves much credit for that.

“I have long thought we should just buy the index within Berkshire and forget about it.”

—————————————
He has had a trace element of both SPY & VOO in his portfolio for as long as I can recall. Both currently ~$24M with VOO $75K greater, would guess both started exactly equal and that VOO is slightly more efficient.
Am guessing this is his portfolio measuring stick.

https://www.cnbc.com/berkshire-hathaway-portfolio/

ciao

Am guessing this is his portfolio measuring stick

Given the trivial size I think it's almost certainly just a position in some obscure division's pension fund, and provides no insight at all into Mr Buffett's thinking. Not for him, not for us.

Jim

Just say’n, having token amounts of the S&P 500 in his portfolio provides an easy instantaneous comparison for overall portfolio performance.

Not unlike the “Berkshires Performance vs. the S&P 500” table
that he provides in every annual report.

ciao

I have long thought we should just buy the index within Berkshire and forget about it. T&T haven’t shot the lights out although Ted probably got Apple on Warren’s radar and he deserves much credit for that.

Agree, it seems T&T have not shot the lights out when investing the sums Buffett gave them, and in the not-too-distant future they will have, what, 50x that amount.

We have to trust Buffett, or do the other thing.

What is the market seeing that I'm not? Buffett's leaving should be priced in, should it not?

Just say’n, having token amounts of the S&P 500 in his portfolio provides an easy instantaneous comparison for overall portfolio performance.


How is this any easier than just looking up the S&P 500 quote?

Agree, it seems T&T have not shot the lights out when investing the sums Buffett gave them...

It's good to remember that essentially all their period of fund management at Berkshire has been a single bull market. During such times, beating the index is very difficult and (more to the point) nearly impossible without taking large positions on the most fashionable things.

Though I have no data one way or the other, it's quite possible they are getting returns similar to an index without taking nearly as much risk of permanent capital loss. That would show up only a year after a big bear market, when good stuff comes all the way back but bad stuff doesn't.

It's remarkably how well a portfolio can do if you merely eliminate a bunch of the biggest losses, even if the rest are middle of the pack. But the interval of evaluation has to span a period that the blowups happen.

Jim

It's good to remember that essentially all their period of fund management at Berkshire has been a single bull market. During such times, beating the index is very difficult and (more to the point) nearly impossible without taking large positions on the most fashionable things.

Though I have no data one way or the other, it's quite possible they are getting returns similar to an index without taking nearly as much risk of permanent capital loss. That would show up only a year after a big bear market, when good stuff comes all the way back but bad stuff doesn't.

Yes, good points.

There was a short bear market. We know what Buffett did. Did Todd and Ted did similar, or did they do what many of us did, and bought with both hands?

Is the Berkshire portfolio too big for mere stock-picking mortals to manage effectively? $600 billion and growing is *a lot* of money to slosh around.
Or is it? Blackrock manage $10 trillion, as do Vanguard and Schwab. Fidelity has a paltry $5T.

Is the Berkshire portfolio too big for mere stock-picking mortals to manage effectively? $600 billion and growing is *a lot* of money to slosh around.
Or is it? Blackrock manage $10 trillion, as do Vanguard and Schwab. Fidelity has a paltry $5T.

I've always wondered how the "managers" of the S&P500 do so very well when compared to 99.9+% of all other fund managers. Somehow they manage to choose additions and subtractions from their "fund" (their index) that over the long-term do better than almost anyone else choosing additions and subtractions from their funds.

Is the Berkshire portfolio too big for mere stock-picking mortals to manage effectively? $600 billion and growing is *a lot* of money to slosh around.
Or is it? Blackrock manage $10 trillion, as do Vanguard and Schwab. Fidelity has a paltry $5T.

Inactivity bordering on sloth will not win out in the post Buffett era. I like the BAM/BN (Brookfield) model. Flatt started the asset management side of Brookfield (2002?) and it has turbocharged their returns. BRK could do the same. They get pitched hundreds of deals (or is it thousands) every year. Maybe use a little less leveraged and carve out the ultra-conservative customers. Seems likely to me the days of discounted friendly acquisitions and superior stock selection are over.

Does anyone track T&T? They have many long run winners and we don't really know what they do behind the scenes with puts and calls and selling short and buying/selling quickly.

Apple 2016 at $27, $248 today.    32% CAGR for 8 years (9 bagger)

DVA   2011 $37.91 , $147 today.   11% CAGR for 13 years

C     2022 $53.40, 68.18 today    10% CAGR for 2 years

KR    2019 $28.99, $61 today,     20.4% CAGR for 5 years

VRSN  2012  38.82, $191 today,    14.2% CAGR over 14 years

V     2011 $21.43, $309.75 today, 20% CAGR for 14-15 years

MA    2011 $25.17, $519.85 today,  22% CAGR for 15 years

AMZN  2019 89.04, $220.52 today,   16.3% CAGR for 6 years

AON   2021 $230.11, $352.38 today, 11% CAGR for 4 years
 
COF   2023 $96.16, $174.43 today,  34% CAGR for 2 years

NU    2021 $9.39, $10.40 today,    3.5% CAGR for 3 years

ALLY  2022 $43.48, $34.61 today,  (20.5% loss in 2 years)

TMUS  2020 $114.36, $220.69 today, 17.86% CAGR 4 years

CHTR  2014 $158, $358.26 today      8.1% CAGR in ~10-11 years

LPX   2022 $51.19, $104.04 today    35% CAGR in ~2 years

NVR   2023 $6350, $8,217 today

LEN.B 2023 $112.98, $139.35 today

DHI   2023 $121.69 Closed but not sure what they sold it for.  $141 now

DEO   2023 $181, $125 today (~30% loss to date)

JEF   2022 $29.50, $75.76 today      48% CAGR ~2-3 years

SNOW  I think this was a break even on IPO but 4 years lost.

Chicago Bridge made money I think but some felt it was a bad company

Precision Castparts was a bad buy and started with a T&T though I think T did well on the trade (Berk not so much)

SIRI and all Liberty stocks too much effort to calculate but please do if you would.

They just bought
DPZ
POOL


Maybe there is some survivorship bias in their current holdings but they seem to be doing well to me.
  

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