2018 Valuation

[wachtwoord]

Thanks for sharing AWS.

[khturbo]

https://concentratedcompounding.com/brk2/

Here's a follow up looking through all the risks, or in this case, the lack thereof. Hard to find anything that is even close to similarly not risky as Berkshire.

[james22]

Nice, thanks.

[IceCreamMan]

Buffett sat down in his office for a rare newspaper interview with the FT, lasting nearly three hours.
At the outset, he was asked which would be the better investment to put in a child’s account — a
share in Berkshire, or a share in the S&P? He did not hesitate: “I think the financial result would be
very close to the same.”

Should this be taken literally, or is this under-promise, over-deliver?

This quote was taken from a recent interview that gfp posted in a different thread:
https://www.ft.com/content/40b9b356-661e-11e9-a79d-04f350474d62

[StubbleJumper]

Buffett sat down in his office for a rare newspaper interview with the FT, lasting nearly three hours.
At the outset, he was asked which would be the better investment to put in a child’s account — a
share in Berkshire, or a share in the S&P? He did not hesitate: “I think the financial result would be
very close to the same.”

Should this be taken literally, or is this under-promise, over-deliver?

This quote was taken from a recent interview that gfp posted in a different thread:
https://www.ft.com/content/40b9b356-661e-11e9-a79d-04f350474d62

Interesting that he should say that.  A quick and dirty logic check would be to look at the difference between compounding money at say 8% vs 9% over a 20 year period (ie, the time for a child to become an adult).  It's not very close to the same at all, unless there truly is no material difference in returns (which might be the intent of his message).  I think that I would be biased towards putting the money into BRK, but that's driven by an underlying assumption of a small advantage for BRK returns.


SJ

[SHDL]

He did also say something like among those things that one could expect to slightly outperform the S&P, BRK should be among the safest.  So I think on a risk adjusted basis he personally much prefers BRK. 

[james22]

Buffett sat down in his office for a rare newspaper interview with the FT, lasting nearly three hours. At the outset, he was asked which would be the better investment to put in a child’s account — a share in Berkshire, or a share in the S&P? He did not hesitate: “I think the financial result would be very close to the same.”

Should this be taken literally, or is this under-promise, over-deliver?

This quote was taken from a recent interview that gfp posted in a different thread:

https://www.ft.com/content/40b9b356-661e-11e9-a79d-04f350474d62

It is Buffett playing avuncular, at his investor's expense.

And it should be taken as inconsistent with his belief that's he taking advantage of a partner if he buys them out.

I really look forward to his successor arguing BRK expects to outperform the S&P 500, without fear of being immodest.

[Lemsip]

Should this be taken literally, or is this under-promise, over-deliver?

Buffett has been saying this almost verbatim at least since the mid 80s. I wouldn't take it literally but as a prudent reminder to keep expectations modest.

I much prefer it to management teams offering confident forecasts of shareholder return of 15% over 5 years etc.

Berkshire will deliver a 10% or so return in almost all market environments over a 10 year period ( more if you enter during a weak period). Good enough for me as a bedrock holding in a portfolio.

Amidst all the criticism of Berkshire performance etc, I just did an IRR calculation on my position for the last 4 years. With significant buys in Aug-Dec 2015 and July 18-Feb 19, the IRR is 17.4% in GBP and 11.7% in USD.  And this with an endpoint where Berkshire has been flatlining since the new year, is sitting on gobs of cash and the business is chugging along well.

I'd take it anytime.

[james22]

I much prefer it to management teams offering confident forecasts of shareholder return of 15% over 5 years etc.

I guess I do too, as long as I'm buying shares. And/or Buffett is buying shares back.

But at some point I'll be looking for share appreciation.

And it's a little dishonest of Buffett unless he believes it. He is otherwise misleading shareholders as to Berkshire's prospects when he offers to buy their shares back.

[Lemsip]

I much prefer it to management teams offering confident forecasts of shareholder return of 15% over 5 years etc.

I guess I do too, as long as I'm buying shares. And/or Buffett is buying shares back.

But at some point I'll be looking for share appreciation.

And it's a little dishonest of Buffett unless he believes it. He is otherwise misleading shareholders as to Berkshire's prospects when he offers to buy their shares back.

Considering the fact that no one including Buffett can predict the future market conditions with 100% accuracy, it is sensible to be realistic about the prospects of a very large company.  Assuming average endpoint conditions, the realistic expectation is the return on shareholder equity that berkshire earns which is around 10%.  As for misleading shareholders, it couldn't be further from the truth. He has already bought back shares at these levels so obviously thinks this is well below intrinsic value. It is just that some people would want him to buy a lot more - but they are not privy to the other options he is considering in capital allocation in any given quarter.

There is no upside for a CEO talking up future returns. I posted by 4 year returns above and I am more than happy to have those numbers in a portion of my portfolio. Having Berkshire as a significant weight especially helped in 2018 when it beat the market by almost 7 points and helped me to a mid single digit positive return on my portfolio when most investors lost money in the markets ( including in bonds).