Let Warren Buffett invest in stocks for you, he will do a better job than index funds or an S&P 500 etf. BRK is a much better solution than SPY for the passive stock market investor because of 5 reasons! Here is the summary of the video:
5 reasons why Berkshire stock is better than the S&P 500 index funds!
(1:03) Comparison of past performance
(3:44) First argument – S&P 500 and BRK investing strategies
(5:32) Index funds can’t copy Buffett’s special deals
(6:27) Second argument – market timing, discipline and cash
(7:31) Return on invested capital
(8:07) Third argument – S&P 500 top 10 holdings in 2018, 2013, 2008 and 1999
(9:26) Fourth argument – Investing in startups, buying high or low
(10:41) Fundamentals – PE, PB, PS
(12:04) Fifth argument – S&P 500 and BRK’s book value growth since 2008
(13:07) Deployment of excess cash
(14:07) Diversification
(14:27) Discussing long term returns
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As usual Great analysis. Thank you! Sven.
Thanks!
Really interesting comparison! Thanks.
I think the Price to Book ratio for Berkshire is nearly always stated low for a reason. The Equity it is measuring is including public company it owns _market value_ and not the equity value of the public stock it holds. For example, it owns Apple which has a price to book ratio of 9.24. Instead of taking 1/9.24 of the value of Apple shares it holds as equity, it used 1/1 of the value of Apple as equity in its calculation. That drastically distorts the valuation of Berkshire as the top 14 out of 15 stocks that Berkshire owns are recognizable blue chip companies with fairly high price/book ratio and not the startup’s you are hinting it owns. One glaring omission of what may make Berkshire do better over longer term is the insurance company structure that allows it to operate like a tax shelter. I think the insurance structure is not going to change even after Buffet is no longer involved with Berkshire.
on the other hand don’t forget that many holdings are still carried at book – See’s Candy etc, so that compensates for the difference in market to book value too!
No See’s Candy nor all of the other private holdings combined get anywhere near compensating for the large position of Apple with 9.24 time book value and other larger positions. You still would not get anywhere near 1.4 price to book by measuring the public companies at shareholder equity level as you would with a fund. If you don’t believe me, go do the math yourself. The way 1.4 is calculated is sort of like calling the market index fund always having price book ratio of 1. Look at the historical range of Berkshire in the reported Price/Book ratio. It always hovered in a relatively narrow range because of such calculation.
Very nice as usual. Thanks Sven.
Just a funny fact I saw recently in a video, in the past Prabai used to buy Berkshire Hathaway stock when there were no good opportunities instead of keeping money, he does not do it anymore, Prabai isn’t even invested in any US stock at the moment.
Thanks Sven, great video as always. I think mindless ETF buying is going to cause the next recession.
mindless is dangereous!
“Stop following the crowd, they are lost” – internetz 🙂
YES, BRK is a good option for a coming bear market and also after passing away of the two leaders (that is often a concern) the strategy of BRK will not change immediately.
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@Jee Vang but brk will have the cash to take advantage of the lows
Great video again Sven. Love watching them they are very informative. Brk.b is one of my biggest holdings. What price have you in mind for BRK stock to dip to for when you will purchase some stock? If you don’t mind me asking
that depends on the other opportunities and what is going on. my required long term return is 15%, so that should be.
Thanks Steve, that is very instructive. Regarding the companies like Cisco, they may not be on top 10 anymore but are still on SP500. Thus, only thing it means is other companies grew faster than them, but they’re still part of the IDX still. What do you think about the fact Warren Buffet is 88 years old vs the continuation of the performance of the company for the next 20 years?
I think that the company is well in place to do well over time and he has been picking people for the past 20 years, after all it is all about the right people!.
Great analysis – Thank you so much Sven for sharing your knowledge !
happy to help!
Berkshire is like a mutual fund with the best managers you could have, and you get it for free! Almost to good to be true!
for passive investors perfect!
And no divv tax !
Berkshire is like a mutual fund investing in the top ten percent of companies. He is looking for an elephant but not seeing it as he is RIDING the elephant. Solution is a dutch auction buy back.
Great video Sven! Berkshire is essentially a managed ETF. It just happens to be managed by the best investor in history and you get to own it without paying an expense ratio. Mr. Buffett has created a company like no other and I’m confident the lieutenants he’s put in place will keep Berkshire Hathaway rolling for decades to come.
Hi Sven, awesome channel! I’ve been following you for a while. You always give me great insights. I’ve been looking at the “Acquirer’s multiple” and I’d love to hear your take on it. Also, if you were to use something like that, how would you pick let say… the best 20 out of 30. Thank you.
it is a good approach but it all boils down to what is your multiple, your personal that you would like your investments to yield.
Again a great video!
I have the german company DPW on my watchliste. Would be nice if you could look at the company from a fundamental perspective! The stock was sold in the previous months due to the weakness of the german market and i think this could be a bargain.
Hi Sven, great video! I was just wondering, doesnt Dow give better diversification in terms of industry allocation rather than S&P. Hence, would it be better to compare Berkshire to Dow?
plus, imo, the biggest Berkshire risk is its biggest capital – Buffett, he’s not getting younger.
I prefer Buffett, even dead to the S&P 500 management.
Thanks! It’s a great idea for the cautious investor!
I find this comparison very interesting. I would say that BRK works more like a portfolio with cash + stocks + bonds vs SP 500 which is pure stock portfolio. Over the longest run, a portfolio that buys cheap with bond as diversification should generate alpha over SP500 which is pure portfolio stock with higher volatility.
That is one of my points:-)
Invest with Sven Carlin, Ph.D. Totally agreeing with you ! Enjoying your videos, they are good insights .
I have a question. If the index owns Berkshire stock, can Berkshire buy into the index? That would lead to bottomless (infinite) recursion.
BRK can do anything they want
When the index funds bubble pops up, BS stock will go down too as a part of the index… The better idea can be to buy directly the same stocks as Buffett does.
thats a great thought
APPL recently went down to 160 USD and is back up again. Such vol you can not find in BRK.
So my strat is to only invest in top 5 stocks of BRK holdings and keep waiting for them to go down and buy them.
Yo, who the hell dislikes Sven’s videos? You haters are on some serious drugs.
Whether you agree or disagree with him, he always puts out in-depth, well researched analysis videos. Always a thumbs up from me.
Can we still safe invest in the Berkshire Class B even when the market price is overvalued?