Author Topic: Are you a Berkshire Hathaway Inc. investor?  (Read 4027 times)

Lemsip

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #20 on: January 10, 2019, 09:33:47 AM »
Hi guys,
First time poster but a long time reader here.
I am one of those in the 35-40% bracket with Brk. I have increased the proportion recently bearing in mind a few developments :
- A current price which more than compensates for any negative post-Buffett risk
- More flexible ( and I would argue more rational ) buyback policy.
- Buffett buying back stock at $207 and Ajit jain buying 20m worth on his personal account at $197 per B ( where it trades today)
- Management with skin in the game ( Ajit and Greg have most of their net worth in Berkshire with shares bought in the open market).

Obviously the core business is as bulletproof as it gets and is being managed very rationally.
All the issues regarding Buffett's eventual passing are well known, widely discussed and any negative scenarios are already priced. What is arguably not priced is any positive developments from the next generation of management who might execute better than Buffett. As the market is neither widely discussing nor pricing this eventuality, at the current price I think it is a good bet.


Dynamic

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #21 on: January 10, 2019, 09:42:36 AM »
Welcome, TB, from me too.

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried.

I agree with this. I've held Berkshire as the bulk of my portfolio (well above 50% at almost all times and willing to have it be my sole investment, which it almost has been at times except for minor positions) ever since I had the ability to by US stocks in July 2003 considering it to be a least somewhat better than an index fund in terms of reliably preserving and growing capital over the long term. Despite paying around 1.6x BVPS back then when perhaps I needed more patience, my original stake has been ahead of an equivalent tax-free stake in the S&P500 Total Return Index quite consistently since October 2007 and fairly close above and below the index even before then.

I've added more since at lower P/BV and obtained a slightly greater internal rate of return than the original position.

I actually took 95% of my Berkshire position to cash temporarily once, for non-investing reasons, but other than that it was always well over 50% for me.

I considered the risks of Buffett and Munger's mortality or retirement modest enough back then not to worry me, especially given the diversity of subsidiaries gushing cash and being run almost autonomously. I did expect to be investing for many years more, allowing me to recoup any permanent losses, though I put the probability of serious permanent loss very low indeed, even if it might suffer a temporary hit on the loss of a key person.

I am of the same opinion today, reassured by my perception of Todd, Ted, Ajit and Greg, but now anticipating that Munger and Buffett will probably not both be working for Berkshire in 10 years' time. I'm thinking it will continue to operate very well for quite some time (perhaps a decade or two) after the succession plan is required, before the culture is at risk of much degradation at all, during which time I'd expect it to have grown substantially in per-share intrinsic value compared to today.

By that stage in my life maybe 2035-2050, I will be well into retirement and will be sure to have sufficient diversification that we can withstand positions suffering permanent impairment, even if it means accepting lower returns.

In the last few years since I have resumed adding new savings rapidly and managing investments more actively, I have to some extent considered Berkshire to be my default option for new funds, giving reasonable downside protection if bought fairly patiently by waiting for a modest P/BV (it's rarely priced extremely high or extremely low so I never feel I'm paying too much for it) and providing remarkably reliable compound growth in IV and stock price over the medium and long term.

If I then happen to find any of those relatively rare (for me) high-conviction opportunities, like Apple at $95 in May 2016 where I want to make a sizeable bet when the odds appear to be heavily in my favour, my general approach is that I am happy to fund those purchases that I expect to generate out-sized returns by selling some of my Berkshire holding, while keeping enough Berkshire to meet my retirement goals even if, say, much of my 25% position in Apple were to flounder and go the way of Blackberry or Nokia from their heyday to their decline.

Given that BRK.B is always priced below my estimation of its IV, it often helps me to wait for a suitably large margin of safety in the alternative before I pull the trigger.

Even if I'd held onto Apple until their price today amid plenty of worries once more, I'd still be 60.7% plus dividends up (and the Berkshire I sold at $140 to fund it is up 38.5% in USD without dividends, so it's still a 22% outperformance plus dividends).  I quite often approximately track the alternative investment's market price versus Berkshire's in this way to judge whether I'm making good Value Trade decisions and how fast they're paying off (if they are) in market price terms compared to my default of holding BRK.B, especially if I funded it from my Berkshire holding. Luckily tax doesn't usually complicate the picture!

I've then tended to revert to buying Berkshire instead when I close those other positions as I think their potential downside risk versus upside potential starts to look a little less favourable than Berkshire's.

This way if these side bets (Value Trades) outperform Berkshire as I anticipate the usually will, I can usually end up owning considerably more Berkshire over time by reinvesting their capital, capital gains and dividends as well as my new cash savings into Berkshire.

Berkshire being my default investment seems to have paid off so far, and has been well worth the time I devote to understanding it as thoroughly as I feel I need to and knowing that I'm getting it for a good price with fairly limited downside risk when I add.

Others will have different strategies and taxation situations and different circles of competence, so your mileage will certainly vary.

But this approach has worked for me, and for me it seems as though it's better for me long term than holding too much cash in fear of the bear, which it seems is always looming for a few years before it arrives, during which time Berkshire is likely to compound at 10% or so for a few years prior to an eventual 20-30% decline, maybe 50% in extremis like 2008-9 GFC, so I will usually be well ahead of the cash alternative when the bear finally arrives and still able to take advantage of bear market opportunities within my wheelhouse.

Berkshire as my default holding with cash at modest levels allows me to be patient and sleep soundly knowing my capital is at work in a range of great businesses before I occasionally take advantage of what I feel are fairly rare and special opportunities within my small circle of competence when I happen to spot them.

In all the 16 years I've held it, Berkshire has not been close to the legendary super-compounder of the 70s and 80s (nor did I expect this), but it's consistently been a very good option for preservation and safe compound growth of capital over long time periods able to take advantage of bear markets for a little extra upside, and as I've come to understand it better, I've mostly purchased more at prices where I rarely see the price go very much more than 5 percent lower than my last purchase, while not missing out very often on upswings by waiting too long (I think I slightly missed out in late 2017 when the price rose above $190 in anticipation of the tax cut before I invested about 10% cash, but I still beat the market by holding two of the largest beneficiaries so I can't complain).

One of these days we will find out what happens when Buffett or Munger leaves the scene, but that could still be quite a time and quite a lot of compounding in the future, so I'll continue to hold an awful lot of my old faithful default option.

aws

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #22 on: January 10, 2019, 02:15:59 PM »
I'm in at 50ish% now.  I increased it a lot initially last summer in the high 180s, and now again around 195 in these days while BRK underperforms the market bounce.  Now that I'm basically fully loaded I would be perfectly happy for whoever is in charge here to take the lid off the price and allow it to move up with the general market. 

SHDL

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #23 on: January 10, 2019, 02:18:26 PM »
I probably have something like 10-20% of my household net worth in Berkshire, and that is despite the fact that I have enough hubris to believe that I can get better returns elsewhere.  As far as passive wealth preservation vehicles go, it’s really hard to find anything much better than this. 

LC

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #24 on: January 10, 2019, 03:11:04 PM »
An idea triggered by Munger’s comment in the 50th year letter, “The stuff we have now is enough” had me come up with NPV’s of future cash flows under various scenarios; staying flat at current rate for aa decade; growing modestly and then flattening out; and of course  various discount rates. Under all assumptions the price was lower than value. This was in 2015, I think. Berkshire ‘s value has marched on at some of my aggressive assumptions. I plan to do this again this May.

Yep - I have not done the exercise outside of my mind but that is what I concluded the result would most likely be.

Everytime someone says that "Buffett's age is the risk" I think, well if he died tomorrow and they started such a runoff, it would probably increase the speed at which Berkshire's value is "realized".

Regarding buybacks vs. dividends -
Once Warren is gone, I prefer dividends. I don't trust the next guy to buy appropriately.
While Warren is alive, I prefer neither. I'd rather give him as much opportunity to find another elephant.

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longinvestor

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #25 on: January 10, 2019, 05:10:05 PM »
An idea triggered by Munger’s comment in the 50th year letter, “The stuff we have now is enough” had me come up with NPV’s of future cash flows under various scenarios; staying flat at current rate for aa decade; growing modestly and then flattening out; and of course  various discount rates. Under all assumptions the price was lower than value. This was in 2015, I think. Berkshire ‘s value has marched on at some of my aggressive assumptions. I plan to do this again this May.

Yep - I have not done the exercise outside of my mind but that is what I concluded the result would most likely be.

Everytime someone says that "Buffett's age is the risk" I think, well if he died tomorrow and they started such a runoff, it would probably increase the speed at which Berkshire's value is "realized".

Regarding buybacks vs. dividends -
Once Warren is gone, I prefer dividends. I don't trust the next guy to buy appropriately.
While Warren is alive, I prefer neither. I'd rather give him as much opportunity to find another elephant.

I actually think that Buffett has addressed his age/transition for a while now. I would like to think that a big chunk of the capital allocated over the past decade (some $100-150 B) has been in the hands of someone other than himself. Ajit and Greg have been solo for a long time, so are all the subs. T & T are there (as Buffett has stated multiple times ) to support capital allocation at the subs. Todd brought PCP to the table etc.  I'd venture that either Todd or Ted even had a hand in the Apple investment. Mentoring for 10 years ain't shabby at all. By the time announcement makes the headline, it would be mere formality.   

John Hjorth

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #26 on: February 03, 2019, 01:30:08 PM »
Conclusion so far: Berkshire - A CoBF darling!

Right now I see five CoBF members with a gross position above 100 percent. At least to me, that's ballsy!

- - - o 0 o - - -

This post is also meant as a friendly bump - the poll is still open, for those members who haven't taken it yet!
« Last Edit: February 03, 2019, 02:56:39 PM by John Hjorth »
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scorpioncapital

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Re: Are you a Berkshire Hathaway Inc. investor?
« Reply #27 on: February 04, 2019, 01:17:30 AM »
I use the training wheels model. I was at like 80% brk for equity portfolio, now down to 40%. The 40% that went down was put into other high quality companies at what hopefully was a decent price that didn't overlap with anything held inside brk equity portfolio. I don't see BRk doubling quite as fast as other potential opportunities. No fault to berkshire! But what can one do? it's a good but difficult problem.