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https://www.berkshirehathaway.com/news/jun2123.pdf

So Mr Buffett has given away more than half of his A shares. Otherwise he would top the net worth list.

I believe it was in the book Snowball that when asked how much he would give his kids he said something like "enough that they can do anything, but not so much that they can do nothing"

So Mr Buffett has given away more than half of his A shares. Otherwise he would top the net worth list.

Yup. About $244.4bn, presumably bumping M. Arnault to second place.
Interesting that neither of them is a tech bro.

The shares given away now have a market value of $129.9bn. That tranche alone is bigger than all but the biggest 36 US companies.
The foundations have of course been selling the shares, but imagine they have had some benefit beyond the aggregate $50bn market value at date of receipt.

The subject caused me to go back and re-read the 2006 annual report, in which the donation plan was discussed.
What struck me the most was how much I miss the old days of having a chairman's letter that discusses multiple operating units in detail.
14000 words then, 3500 now. Dagnabbit.

He also mentioned in passing that he then had a life expectancy of about 12 years, so he's doing pretty well (as are we), already past that by five years and still showing up for work.

Jim

Be glad that Peter Buffett and his NoVo Foundation aren't involved with corporate governance at BRK. He runs his little fiefdom in Ulster County, NY, where he's distorted the Kingston, NY economy with everything from 'alternative currency" to hiring local hacks to high-paying jobs to pretend they run a community radio station loaded up with hand-selected staff that ignores more than it reports. It's great for those old, barely employable types who now drive electric cars while they work for NoVo. But as a functional economy, not so much.

https://hudsonvalleyone.com/2022/08/30/dramatic-di...

The subject caused me to go back and re-read the 2006 annual report, in which the donation plan was discussed.

The thing most people overlook is Buffett saying a 5% "Berkshire share" withdrawal rate will last a very, very long time.

"The value of Berkshire shares will, of course, vary from year to year. And, as noted, the number of shares distributed will diminish by 5% per year. Nevertheless, I believe that you can reasonably expect the value of Berkshire shares to increase, in an irregular manner, by an amount that more than compensates for the decline in the number of shares that will be distributed."

In other words, you will always have less shares, but those shares are worth much more.

There's been so much ink spilled over the 4% SWR and asset allocations and all that stuff. A very simple retirement plan is 100% Berkshire and 5% withdrawal.

'There's been so much ink spilled over the 4% SWR and asset allocations and all that stuff. A very simple retirement plan is 100% Berkshire and 5% withdrawal.'

Yes! Jim has provided great data revealing on average you could withdraw more than this based on BRK's consistent growth in valuation, and still keep your principal amount in Berkshire going forward. The 'lean years' where you could not withdraw 4% based on valuation were uncommon. This and WEB's example from his actual giving data and running net worth over 17 years have provided a lot of peace of mind to many of us!

Jim has provided great data revealing on average you could withdraw more than this based on BRK's consistent growth in valuation, and still keep your principal amount in Berkshire going forward. The 'lean years' where you could not withdraw 4% based on valuation were uncommon.

Yup.
I think it's a useful model.
The underlying idea is that, ultimately, the amount you can withdraw from a portfolio without ANY danger of it running out is the rate of increase in the value of the portfolio.
If you don't withdraw more than the real increase in value, perhaps with some smoothing, then the portfolio will last forever...or at least as long as the businesses in it are creating value.

FWIW, below is my latest table of share values. The valuations are adjusted for inflation, then smoothed.
Each value number is the simple average of my "two and a half column" valuation method, and book per share.
The final scale is pretty arbitrary...the thing to look at is the rate of increase, not the actual absolute number.

So, the percentage of your portfolio you can liquidate and spend each quarter is proportional to how much this number has gone up.
To the extent that the valuation methodology is valid and the smoothing isn't too extreme, by construction your portfolio will always have the same real value and it will last forever.

The two year rate of change is inflation + 8.2%/year. The last year is showing the slowdown, at only inflation + 5.1%.

I added a price column...that is the average real share price in the quarter that the financial statement in question was released.
So, the Q4 line is the value based on the Q4 statements, and the average price in the following Q1 when the Q4 statements came out.

For a SWR strategy based on this, I think it's OK to put a floor on the withdrawn amount. But that's a matter of taste.
(my personal favourite version pays out only 90% of the allowed amount each quarter to give slight long term growth, but also has a floor payment of 1% per quarter)

As an aside, the ratio of current price to smoothed real value has historically been an excellent predictor of expected returns in the subsequent 1-2 years.

Jim

          Smoothed   Average
Quarter     Value     Price
1999-Q3     81601    100682
1999-Q4     85191     87147
2000-Q1     87939     97525
2000-Q2     90443     98955
2000-Q3     92796    108186
2000-Q4     95140    116579
2001-Q1     96338    114044
2001-Q2     97167    114523
2001-Q3     97447    118942
2001-Q4     97662    122604
2002-Q1     98121    122520
2002-Q2     98644    117313
2002-Q3     99022    119230
2002-Q4     99410    109557
2003-Q1     99926    117528
2003-Q2    101388    120347
2003-Q3    102952    129746
2003-Q4    105442    146398
2004-Q1    108027    144736
2004-Q2    110314    137364
2004-Q3    112428    133368
2004-Q4    115187    138623
2005-Q1    117776    130957
2005-Q2    120196    127822
2005-Q3    122447    131697
2005-Q4    124657    133157
2006-Q1    127152    134860
2006-Q2    129419    137399
2006-Q3    132061    153789
2006-Q4    135623    160025
2007-Q1    138857    159320
2007-Q2    142145    162957
2007-Q3    145833    191461
2007-Q4    149048    191915
2008-Q1    151572    179826
2008-Q2    153160    163588
2008-Q3    154625    144302
2008-Q4    154859    119079
2009-Q1    154952    123832
2009-Q2    155411    133221
2009-Q3    157394    138368
2009-Q4    159816    157084
2010-Q1    163090    158341
2010-Q2    165228    163358
2010-Q3    168082    166229
2010-Q4    171700    170358
2011-Q1    175159    159736
2011-Q2    178226    142973
2011-Q3    180557    149664
2011-Q4    183431    156715
2012-Q1    187475    158142
2012-Q2    191133    166207
2012-Q3    195338    171068
2012-Q4    204296    192086
2013-Q1    209208    211738
2013-Q2    214093    221470
2013-Q3    219087    220985
2013-Q4    225486    224102
2014-Q1    231546    240914
2014-Q2    237670    250230
2014-Q3    243922    271341
2014-Q4    250170    278605
2015-Q1    256231    271900
2015-Q2    261954    257597
2015-Q3    267382    252154
2015-Q4    272887    249546
2016-Q1    277920    269427
2016-Q2    282371    272116
2016-Q3    286548    285506
2016-Q4    291448    309748
2017-Q1    296791    305312
2017-Q2    302257    322741
2017-Q3    307700    345699
2017-Q4    315588    372212
2018-Q1    322637    350220
2018-Q2    330239    364539
2018-Q3    339500    370573
2018-Q4    346215    358093
2019-Q1    354269    365709
2019-Q2    362420    359868
2019-Q3    371616    378185
2019-Q4    382735    369114
2020-Q1    390103    315921
2020-Q2    397738    356413
2020-Q3    405940    378937
2020-Q4    417448    417300
2021-Q1    429514    474941
2021-Q2    442016    466739
2021-Q3    453948    467897
2021-Q4    466641    519579
2022-Q1    478135    495027
2022-Q2    485276    435358
2022-Q3    491409    448092
2022-Q4    496685    461813
2023-Q1    502520    483424
  

Hi Jim

Great post. could you perhaps explain or maybe point me to a previous post on how you arrive to your smoothed value figures?

thanks

could you perhaps explain or maybe point me to a previous post on how you arrive to your smoothed value figures?

Really short answer: four year average of 1.5 times book per share.

Longer answer:

As above, but with a few tweaks, including:

More recent data is more important than older data, so I use a "weighted moving average".
Weight of 1 on the oldest data point, weight of 2 on the second-oldest, weight of 3 on the third oldest, and so on up to the most recent figure.

I used 16 quarterly figures instead of 4 annual figures, with weights 1 through 16.

For each quarter I used the average of (1.5 times book per share) and (my two-and-a-half-column valuation method).
It makes surprisingly little difference compared to simply using book per share, but my valuation method is a bit less volatile.

I am of the opinion that drops in book value are always transient and do not represent drops in the true value of a share, just a limitation in the precision of book as a value proxy.
However, I'm willing to admit that sometimes just before a bear market, book per share might be a little bit unsustainably high when stock valuations are bubbly.
Remember the price of Coca Cola in 1999, for example.
So I picked a figure of 96% of peak-to-date book-per-share as the "floor" of my estimate of value.
For each quarter, I used 1.5 times the higher of (current book per share) and (96%-of-peak figure) so there are dips in bear markets, but never big ones.
That figure is then fed into the 16 quarter weighted moving average described above.

After you do this, and especially after my tweaks, the smoothed value is always rising.
It just slows down during bear markets - a lower rate of growth of observable value.
The year on year increase in smoothed value got down to inflation + 3.3% for one quarter in the credit crunch. (recent peak inflation+12.9% 2018-Q3)
Without the smoothing, the year-on-year figure would have hit inflation -4% three times.
The smoothing makes the slowest periods seem slow, not negative.

Here are some old posts on the idea of using a smoothed value proxy as an input to a safe withdrawal rate calculation
Original post http://www.datahelper.com/mi/search.phtml?nofool=y...
A follow up 5.5 years later (2.25 years ago) http://www.datahelper.com/mi/search.phtml?nofool=y...

Jim

Thanks a lot and appreciate the time. Still reading through it and will play with it on the weekend.

In the archived post in 2021 you mentioned "so long as brk keeps rising at say inflation +6pct then you can cash out that amount on average". I assume that leads to retaining the nominal usd 1m and so to maintain its purchasing power you can only take out the 6pct over and above inflation?

If you were to look at something similar for the S&P 500 or a KMX or DG, could you assume taking out the earnings yield (apparently 3.98pct today for the S&P) each year would protect your portfolio from depletion? Or is this stupid given earnings are not paid out in full or necessarily retained to build value?

In the archived post in 2021 you mentioned "so long as brk keeps rising at say inflation +6pct then you can cash out that amount on average".
I assume that leads to retaining the nominal usd 1m and so to maintain its purchasing power you can only take out the 6pct over and above inflation?

My suggestion results in your retaining the real $1m you started with, not the nominal $1m.
You're selling only an amount proportional to the rise in real value, so the remaining real value at the end of each period remains forever unchanged.
Your estimate of real value will necessarily be imprecise, especially with a bit of a time lag due to the smoothing function.
And the market value will vary up and down a bit. But in general you always have the same real value in capital at the end of each period.

My recommended implementation is to do the calculation of what you can safely sell each period, but actually sell only 90% of that much.
That will cause the real value of both the capital and cash withdrawals to rise slowly over time. Very slowly.
It adds a bit of a margin of safety for things like errors in your valuation metric, or a personal expenditure inflation rate higher than monetary inflation.
The margin of safety can also be used to fund a floor under the withdrawal amount, e.g. 1% of real value of starting capital each quarter.
It's nice to know there is a minimum size of cheque coming.

Jim

thank you Jim

I am astounded at the belief in Buffett's immortality on this board.

Please wake up. Odds are that he will have passed on in the next 5-10 years. Abel is able, Ted has a good record, Todd is a dud. None of them is going to bet big on the next Apple.

We have no idea where Berkshire will be in 10 years. At best an average performer.

Ted is amazing imo. What he did with his Roth IRA boggles my mind:

https://twitter.com/CundillCapital/status/14080906...

I can't say the same about Todd. I wish Warren would disclose Ted and Todd's investment record just like he did with Lou Simpson for many years. Less information is never good.

Able may be just fine.

Warren certainly has a limited time left with us and that is unfortunate. But don't worry - his two children will be on the Board protecting the culture!

"I can't say the same about Todd. I wish Warren would disclose Ted and Todd's investment record just like he did with Lou Simpson for many years. Less information is never good."


We do know that our current CEO has given both individuals MORE money to work with over the years. How do you reconcile this fact with your "less information is never good" assertion?

"How do you reconcile this fact with your "less information is never good" assertion? "

Easy it is not an assertion it is a fact. They may have more money but Warren refuses to provide their performance record. One minor comment was "they have slightly trailed the S&P". Warren can be obstinate on certain points.

I respect that both have added other value to Berkshire with one of them leading Warren into Apple. Kudos for that.

Rationalwalk recently wrote a piece on this disclosure. Worth a read.

Warren refuses to provide their performance record...

Do other insurance companies regularly publish the investment records of their portfolios broken down by manager?
Same question for closed end funds?

Jim

"Do other insurance companies regularly publish the investment records of their portfolios broken down by manager?
Same question for closed end funds?"

Warren disclosed Lou Simpson's record even pointing out in a very small font in an annual report that Lou's record was better than his.


I don't see the downside. If these guys are going to be entrusted with tons of capital once Warren leaves, we should know how they are doing over a long stretch.

Otherwise, put it an index. Heresy I know.

I am astounded at the belief in Buffett's immortality on this board.
Please wake up. Odds are that he will have passed on in the next 5-10 years. Abel is able, Ted has a good record, Todd is a dud. None of them is going to bet big on the next Apple.
We have no idea where Berkshire will be in 10 years. At best an average performer.

Though it's certain that Mr Buffett will soon no longer be in charge of capital allocation, my objection to this comment has its focus on the words "at best".
I would substitute "at worst" as a more reasonable expectation.

Berkshire has some modest advantages over the average US firm, many of which will fade only slowly.
Things like the strong emphasis on a bulletproof balance sheet ahead of that last fraction of a percentage point of returns,
the unwillingness to take on more leverage for the same reasons,
the unwillingness to reach for yield (taking bad paper when the good issues are offering little),
the tradition of patience to wait for a fat pitch,
the tradition of avoiding over-active trading and chasing short term fads,
the tradition of ignoring short term price and even earnings volatility,
the refusal to participate in auctions with the inevitable winner's curse,
the ability and willingness to move capital tax free from elderly cash cow units to units with opportunities for allocating new capital at high rates of return,
and (most importantly) a general emphasis on making investments in businesses with longevity entered at prices offering a margin of safety.
Plus, of course, the fact that the average existing business owned by Berkshire today is a little bit better than the average existing business NOT owned, so we go into the contest with a build-in tail wind for a while.

Nobody can do those things as well as Mr Buffett, so I expect that most or all of these factors will fade.
But the mere act of trying should ensure that one should rationally expect forward results a pinch better, not a pinch worse, than average.

Berkshire's rate of value generation traditionally, and still, outstrips that of the S&P 500 companies.
The price performance tie in the last 20 years has been accomplished while the S&P got more expensive and Berkshire got cheaper.
Let's call Berkshire's annual value performance gap above the average long run return from a US equity position the "X" factor.
I personally anticipate that each year's X factor after Mr Buffett's departure will be maybe 90-94% of the previous year's X factor: asymptotically approaching (from above) the monkey-with-a-dartboard rate.
While retaining a better than average degree of safety because of the balance sheet.

Jim

"Do other insurance companies regularly publish the investment records of their portfolios broken down by manager?
Same question for closed end funds?"
...
Warren disclosed Lou Simpson's record even pointing out in a very small font in an annual report that Lou's record was better than his.

Not really answering the question.
Other than to point out that Berkshire has been more forthcoming than others.
Just not as forthcoming as you would like.
(as an aside, the answer to both my questions is definitely "no")

Though disclosure of manager-level portfolio performance is debatable, there are certainly lots of things that I would love to know about Berkshire's
performance that are kept confidential for very good reasons...the confidentiality maximizes the value to shareholders.
As a random example, the gross margin level at Netjets is in effect a trade secret, and I'm fine with that because it's for a good reason.
It is wildly inaccurate to suppose that more disclosure is always better.
As I am comfortable with the risk parameters, I would rather have a slightly better return and a pinch more ignorance of the mechanics than the reverse.

Jim

I knew the answer to the question you asked of course. As is said, don't ask a question you don't know the answer for.

All good. You and others are happy with no disclosure on T&T's results. I am not but won't lose sleep on it.

I think it is inconsistent with Warren's past disclosures and his view of us as partners.

I fully agree with you that over the years there has been a trend to less detail in the financial disclosures for whatever reasons.

Jim, 100% agree.

There are tailwinds built into the Berkshire system that should outlast Buffett. I would add one important point to your list: The rare quality of caring about minority shareholders and treating us fairly.

This is something that has been lost in corporate America. Most executives donīt even care about shareholders. Building value per share is not a priority. Compensation is astronomical in most cases and there is little care/capacity towards capital allocation.

Berkshire is a valuable exception. It is difficult to find companies with this culture in the public markets.

As a curiosity, how many years did Lou Simpson work for Berkshire? How many years were we provided his performance record relative to the S&P?

I can only think of one year where we were given a performance record - which was a 25 year performance "review". Now I'm sure for many, if not most of those years, he didn't even work for BRK. But this is off the top of my head.

"Simpson managed the investment portfolio of the insurance giant Geico, a subsidiary of Buffett's Berkshire Hathaway conglomerate, between 1979 and 2009. He returned an average of 20.3% a year between 1980 and 2004, trouncing the S&P 500's 13.5% average annual return over the same period. Moreover, he beat the benchmark in 18 of those 25 years.

Buffett never disclosed Simpson's later results "because his performance made mine look bad," he quipped in his 2010 shareholder letter. "Who needs that?"

The Berkshire chief praised Simpson's abilities in numerous investor letters and during several Berkshire meetings. Buffett even suggested the Geico executive would take charge of Berkshire's portfolio if he and his right-hand man, Charlie Munger, were to meet a sudden demise.


so Lou worked for Berkshire for 30 years.

"Simpson managed the investment portfolio of the insurance giant Geico, a subsidiary of Buffett's Berkshire Hathaway conglomerate, between 1979 and 2009. He returned an average of 20.3% a year between 1980 and 2004, trouncing the S&P 500's 13.5% average annual return over the same period. Moreover, he beat the benchmark in 18 of those 25 years.

Buffett never disclosed Simpson's later results "because his performance made mine look bad," he quipped in his 2010 shareholder letter. "Who needs that?"

The Berkshire chief praised Simpson's abilities in numerous investor letters and during several Berkshire meetings. Buffett even suggested the Geico executive would take charge of Berkshire's portfolio if he and his right-hand man, Charlie Munger, were to meet a sudden demise.


so Lou worked for Berkshire for 30 years."



OK!

So we have 1 year out of 30 years where performance data was provided. So I can't agree with your "fact" that "less information is never good." The first year we did see a set of data was in year 25.


Here are Warren's comments in 2013 on Todd and Ted:


In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd
Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $7 billion. They've earned
it. (They started with 3 each)

I must again confess that their investments outperformed mine. (Charlie says I should add 'by a lot.') If
such humiliating comparisons continue, I'll have no choice but to cease talking about them.
Todd and Ted have also created significant value for you in several matters unrelated to their portfolio
activities. Their contributions are just beginning: Both men have Berkshire blood in their veins


Maybe in a dozen or so more years we'll see something.

"...the gross margin level at Netjets is in effect a trade secret."

this seems pretty fragile, if the entity could significantly collapse because someone leaked a profit metric.

you may be interested in the work by sparkline on quantifying intangibles, given those are attributed to the huge run-up in the overall u.s. market.

Hi Jim,
Referencing your posting #2517 on 24June, I was wondering what your
latest data points for the "Inflation adjusted Smoothed Real Value" and "Average Price" for BRKA after the 2023-Q2 report.
I tried to calculate my own data (per your instructions), but my numbers varied a bit from yours,
so I thought I would just use your data in my own excel sheet.
Thanks and Kind Regards.
Lester

Prices in today's dollars with CPI=305.11

I changed the smoothing method by a fraction of a percentage, nothing meaningful, but enough that the numbers won't quite match the old ones.

As before, first column is the smoothed rising value metric (average of two methods) ending on the date shown
second column is average market price in the quarter that the statements came out: the quarter starting with the date shown

2015-06-30   263182   261347
2015-09-30   268355   257476
2015-12-31   273919   255570
2016-03-31   279209   275768
2016-06-30   283980   278203
2016-09-30   288822   289389
2016-12-31   294788   316531
2017-03-31   300996   312442
2017-06-30   307357   329640
2017-09-30   313861   353776
2017-12-31   324728   379308
2018-03-31   334104   358167
2018-06-30   343529   374396
2018-09-30   354330   380498
2018-12-31   362169   366615
2019-03-31   370305   376305
2019-06-30   378719   370215
2019-09-30   388137   385432
2019-12-31   400034   374162
2020-03-31   408526   325629
2020-06-30   415968   363073
2020-09-30   424612   384286
2020-12-31   436704   428431
2021-03-31   448215   485169
2021-06-30   460578   478072
2021-09-30   471610   480047
2021-12-31   485372   527399
2022-03-31   497037   507287
2022-06-30   505649   447830
2022-09-30   513192   462031
2022-12-31   519807   478736
2023-03-31   525374   503397
2023-06-30   532316	

This smoothing method, by construction, reacts only slowly to a slowdown in the rate of growth of value.
The two valuation metrics that went into it are real book per share (up only 3.0%/year rate last two years) and my two-and-a-half-column method (up only 0.6%/year in the last two years).
A further slowdown in the smoothed metric is coming, as this slow stretch will be in the averages for a total of four years.

Jim

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