Considering Berkshire Hathaway Stock

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tcb1005
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Considering Berkshire Hathaway Stock

Post by tcb1005 »

Hello Bogleheads,

I hope you are doing well. I am a 24 year old investor who has been following the three fund approach since 2020. It has served me well and I am pleased with my current asset allocation in retirement and taxable of 15% Total Bond Market, 68% Total US Stock Market, and 17% Total International stock market index. I have already maxed out my roth IRA contribution for the year.

My question to you is I have recently liquidated one of my legacy holdings in my taxable account, the Morgan Stanley Institutional Global Opportunity fund, MGGPX, which had an expense ratio of 1.2% (Yikes!). With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.

My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice? I do think in the long run the total stock market will outperform the vast majority of mutual funds and individual stocks in existence today over a 50 year period, however even with the recent tech crash I still believe many of the largest constituents of the total stock market index are still overvalued. I genuinely do think Berkshire is a company like no other, but would like to hear second opinions.

Thank you.
“People calculate too much and think too little.” Charlie Munger
ClassII
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Re: Considering Berkshire Hathaway Stock

Post by ClassII »

Pretty hard to argue against Berkshire based on the data but the one overriding issue I have is that it's a cult of personality with Buffet and Munger. They're both in their 90s and could literally go at any moment. There's no real public plan for when they die/retire and even with the best man for the job waiting in the wings it'll be a period of panic that'll send the stock into the dump for an extended period.

Not to mention if the WRONG person is waiting in the wings. Perhaps the magic ends when Buffett is gone? While there doesn't seem to be a lot of magic behind his moves (mainly just old fashioned value investing) there's still no telling what'll happen with them. At least with an S&P fund there's no way one single person (or two people) could vastly affect it. That's got to be worth at least a little profit.
quaternion
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Re: Considering Berkshire Hathaway Stock

Post by quaternion »

  1. Buy one share of BRKB.
  2. Call GEICO.
  3. Save ~8% on your auto insurance with the affiliate discount.
  4. Invest the rest in VTI.
drk
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Re: Considering Berkshire Hathaway Stock

Post by drk »

If you want to set aside this 5% as play money and put it into Berkshire, go for it. But this ...
tcb1005 wrote: Mon May 16, 2022 9:04 pm Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways.
... is basically sending up the Nisiprius Signal. I'll boost the signal by quoting my favorite answer to this (frequently asked) question:
nisiprius wrote: Tue Jun 19, 2012 7:36 am It is a stock. It is a single stock in a single company. That is just what it is. It's an objective fact. Words do have meanings, and no good is served by blurring them. There's no good reason to mention "Berkshire Hathaway" and "mutual fund" in the same breath unless you're trying to make a sales pitch for it.

If Warren Buffett wanted to run a mutual fund, Berkshire Hathaway would be a mutual fund.

If you want to invest in Berkshire Hathaway, fine. Buy it or don't buy it. But don't kid yourself about what it is or what you are doing. Buy it because you think it's a good company, not because you think it's a mutual fund.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
jjj_22
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Re: Considering Berkshire Hathaway Stock

Post by jjj_22 »

Would you buy a mutual fund 20% of which was in Apple?
privateer79
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Re: Considering Berkshire Hathaway Stock

Post by privateer79 »

I think there are alot of benefits to a Berkshire investment:

- its pretty well diversified (although its no S&P 500)

- Its Sterling reputation presents it with unique opportunities not available to general investment firms (i.e. BAC & GS bail out with warrants, etc... its like an instagram influencer of investment banking :wink: ... getting freebies/sweatheart deals so counterparties can brag that BRK believes in them )

- If you're in a high tax bracket it "shields" you from dividend income produced by marketable securities (apple, coke, Amex, etc...)


One note of warning.. its PE is likely not that low in reality... recently accounting standards were changed to require them to "mark to market" changes in their held securities.. so alot of that 90B in "earnings" may be appretiation in Apple, etc... (Berkshire is up front about this, and Buffet complains that the rule will make Berkshires earnings erratic and not representative of the underlying business performance).
Normchad
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Re: Considering Berkshire Hathaway Stock

Post by Normchad »

I thought about doing it too, back in. 1998. I didn’t do it then because I thought Buffett and Munger would be dead soon, and the magic would be gone.

In the last 22 years, they haven’t gotten any younger.
WarAdmiral
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Re: Considering Berkshire Hathaway Stock

Post by WarAdmiral »

I don't think it's a bad ploy. It is a very stable business which brings in billions of dollars in revenue not only from it's various in revenues but also in form of dividends from it's marketable securities. It does not pay out dividends which means there are no forced taxes and it is currently underalued as you noted.

It currently has 100B+ in cash ready to be deployed and has been buying back it's own stock recently. It never issues stocks to it's employees like some of other tech companies do. It does not split stocks. In other words, it's total share count remains the same or reduces over time making your earnings per share higher. If it ever paid out dividends (after Warren B is gone and if new CEO decides to do so), it will be hefty one. Until, then it will compound it's retained earnings like it has been doing for last 65 years.
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Wiggums
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Re: Considering Berkshire Hathaway Stock

Post by Wiggums »

The link has some details of what is expected to happen with Warren Buffetts shares. only time will tell how the plan plays out in reality.

https://finance.yahoo.com/news/warren-b ... 00528.html
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saver007
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Re: Considering Berkshire Hathaway Stock

Post by saver007 »

BRK operating earnings is in the neighborhood of 25B to 35B. 90B net income must have included mark to mark changes of their security holdings which is very volatile.

I do support buying Berkshire. BRK is trading close to it's book value may be 1.3 times it book. You are getting a collection of high quality business at very reasonable valuation. It s a reasonable bet they can grow book value 10% per year if not more.
LFS1234
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Re: Considering Berkshire Hathaway Stock

Post by LFS1234 »

privateer79 wrote: Mon May 16, 2022 9:42 pm One note of warning.. its PE is likely not that low in reality... recently accounting standards were changed to require them to "mark to market" changes in their held securities.. so alot of that 90B in "earnings" may be appretiation in Apple, etc... (Berkshire is up front about this, and Buffet complains that the rule will make Berkshires earnings erratic and not representative of the underlying business performance).
+1

This is important.

The current mark-to-market accounting rules often cause Berkshire's reported earnings to be highly misleading to the casual investor - grossly overstated earnings for quarters where the stock market has been on a roll, and grossly understated earnings where the opposite has been the case. In valuing Berkshire, it makes more sense to pay attention to operating profits and to make the appropriate adjustments from there, than just to take the headline numbers at face value.

Berkshire is a very fine company and for those with a long term (or in this case a very long term) time horizon, I think it is very reasonable to consider an investment in it.
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Re: Considering Berkshire Hathaway Stock

Post by doobiedoo »

ClassII wrote: Mon May 16, 2022 9:10 pm Pretty hard to argue against Berkshire based on the data but the one overriding issue I have is that it's a cult of personality with Buffet and Munger. They're both in their 90s and could literally go at any moment. There's no real public plan for when they die/retire and even with the best man for the job waiting in the wings it'll be a period of panic that'll send the stock into the dump for an extended period.

Not to mention if the WRONG person is waiting in the wings. Perhaps the magic ends when Buffett is gone? While there doesn't seem to be a lot of magic behind his moves (mainly just old fashioned value investing) there's still no telling what'll happen with them. At least with an S&P fund there's no way one single person (or two people) could vastly affect it. That's got to be worth at least a little profit.
BRK does have a succession plan.
Greg Abel will take over as CEO. Ajit Jain would continue to run the insurance operations.
https://www.cnbc.com/2021/05/03/when-wa ... d-him.html

And for stock picking, Todd Combs and Ted Wechsler currently control about $34 billion of investments. That figure has grown since they joined BRK in 2012 and will likely continue to grow.
https://seekingalpha.com/news/3806247-w ... ual-letter

Berkshire Hathaway's succession plan has been in place for many years. And has been officially public for a year.
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Watty
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Re: Considering Berkshire Hathaway Stock

Post by Watty »

tcb1005 wrote: Mon May 16, 2022 9:04 pm My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice?
You could do a lot worse things so that is not too risky as long as you count that as part of your overall stock asset allocation.

A big problem is that even if you are making a good call and it does fantastic and it outperforms a total stock index fund by 20% then that would only get you an extra 1% of your portfolio (20% of 5% is 1%) so that would be little more than a rounding error.

Right now Berkshire is so large that it is virtually impossible that it could grow exponentially like some small new company could grow a lot and make you a life changing amount of money.

If your best case scenario will not make a noticeable difference in your financial situation then there is little reason to do it.
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Re: Considering Berkshire Hathaway Stock

Post by Valuethinker »

tcb1005 wrote: Mon May 16, 2022 9:04 pm Hello Bogleheads,

I hope you are doing well. I am a 24 year old investor who has been following the three fund approach since 2020. It has served me well and I am pleased with my current asset allocation in retirement and taxable of 15% Total Bond Market, 68% Total US Stock Market, and 17% Total International stock market index. I have already maxed out my roth IRA contribution for the year.

My question to you is I have recently liquidated one of my legacy holdings in my taxable account, the Morgan Stanley Institutional Global Opportunity fund, MGGPX, which had an expense ratio of 1.2% (Yikes!). With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.

My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice? I do think in the long run the total stock market will outperform the vast majority of mutual funds and individual stocks in existence today over a 50 year period, however even with the recent tech crash I still believe many of the largest constituents of the total stock market index are still overvalued. I genuinely do think Berkshire is a company like no other, but would like to hear second opinions.

Thank you.
5% is neither here nor there in terms of your portfolio, but it is probably pretty tax efficient.

At a guess, the most likely outcome for BH post Munger & Buffett is a breakup. That usually releases a lot of shareholder value -- although in this case the "conglomerate discount" may not apply (the costs of Buffett's management are quite low, market prices in a premium for track record).

Interest rates are rising and that's generally good for insurers (as I understand it) so that would be a net positive.

I would say do it, and then fire-and-forget.

You should be aware that the history when exceptional fund managers retire (John Neff at Windsor, Peter Lynch at Fidelity & Magellan Fund) is that performance falls back towards the mean -- "hot hands" are rare in fund management, just as they are with other types of human activity (fighter pilots, for example: the best are perhaps 10-50x more effective than the median).
invest4
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Re: Considering Berkshire Hathaway Stock

Post by invest4 »

One of the best takeaways from this forum is the value of simplicity in your portfolio, which should not be underestimated.

For what you propose, I don’t believe the juice is worth the squeeze. I would encourage you to reconsider this tinkering in your portfolio and keep it simple.
doobiedoo
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Re: Considering Berkshire Hathaway Stock

Post by doobiedoo »

I have 6.6% of my net worth in BRK-B shares.
It has done well. I started buying BRK-B in 1996 at $31/share.
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Re: Considering Berkshire Hathaway Stock

Post by Jack FFR1846 »

Berkshire has had a succession plan for quite a while and it's been quite public for quite a long time as doobiedoo pointed out.

For what reason would you choose BRK over VTI or SCHB or some S&P 500 fund? ER? How about FZROX which also has zero? Spilling gains and dividend problems? Ok, I buy that.

Personally, not only do I hold BRK/b in my US equity position, any time I tax loss harvest or buy new now, I shed the dividend spilling funds in taxable such as VTI and SCHB. Why? I'm looking forward to a less than a year point to retire. I want to do Roth conversions and I want to stay in the lowest federal tax bracket. Thousands of dollars in dividends throws a bit monkey wrench into this plan and pushes us into higher tax brackets, increases medicare costs and will just annoy me. BRK/b doesn't pay dividends. But I very well understand that this is NOT a total stock or S&P follower. For example, I've looked over my 401k, IRA and single funds like VTI and SCHB recently YTD. They're all something like 16% down while BRK/b is 10% up. Does this mean that when the market recovers that BRK/b will drop? I don't know. I don't believe in it reverting to the mean, so there's that. Lately, BRK has been buying back their own stock. This isn't news. It's because they hold so much cash and don't see good enough bargains out there to buy companies. Sounds like reasonable strategy to me.

I'll repeat that this strategy is MY strategy and I don't recommend it to others. I don't want dividends. That's my main reason to hold BRK. I know there are people who for some reason want dividends and they would never hold BRK or Amazon or other non-dividend payers and like forced liquidation and pay outs and perhaps like paying taxes. Like lottery ticket buyers. :D
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

Performance chasing - we get numerous posts about BRK now that it is outperforming the S&P 500 year-to-date. No one gave a crap about it in 2020 while growth stocks were killing it - instead it was all about QQQ. Throw in a dollop of hero worship and complete lack of understanding about diversification (BRK is just like a broadly diversified mutual fund!) and you'll get people lining up to add it to their portfolio - at least until the next shiny object comes around. 5% of your portfolio though - who cares - doesn't matter that much - but ask yourself if not for Buffett/Munger, would you even know about this holding company that has underperformed the S&P 500 for the last ~15 years let alone invest in it?
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Re: Considering Berkshire Hathaway Stock

Post by Caduceus »

I think Berkshire stock is an excellent choice. You can't calculate Berkshire's P/E using the method you describe because its net income is now muddied by changes in GAAP rules that require it to take into consideration short-term gains and losses from its investment portfolio. It's been a while since I read Berkshire's annual reports but for sure it does not generate anywhere near $90 billion in operating earnings.

The easiest way to value Berkshire is to think about it as comprising two portions: the first is the cash and investment portfolio. You can readily assign a market value to that because these marketable securities have real-time market prices. So you subtract the cash and investment portfolio from Berkshire's total market cap, and that gives you the total valuation of the operating businesses. If you read the financial statements or Buffett's letter, you will be able to find the figure for the operating earnings of the businesses, without considering the investment gains/losses, which will give you a P/E for the businesses.

The reason you want to separate out these two components is that because Berkshire owns so many marketable securities, its earnings are typically understated if you look solely at operating earnings because it counts dividends it receives from its portfolio companies, but not the retained earnings. And retained earnings are usually the much larger part of earnings.

Berkshire is probably about fairly valued right now.
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

If you do believe that Buffett still has the special sauce, I remember him saying in a recent interview that he basically hands someone in the company a list of trades he wants done that at times could be billions of dollars. That doesn't sound to me like he's mentoring the new guard. Basically that he's Buffett and you do what he says. I imagine once him and Munger are gone, there's probably some in Berkshire that will feel they can finally pursue trades/acquisitions that Buffett/Munger wouldn't have approved of. Of course the marketing dept has their own spin on how things will continue which is probably complete B.S. But unlikely Berkshire will still be the same Berkshire once the young guard are able to make their own mark with the company.
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Re: Considering Berkshire Hathaway Stock

Post by TomatoTomahto »

We have been very happy with our one share of BRK.A because of its great tax treatment (no dividend). That said, we have not added any shares, A or B.

When we die, our kids can break them into B shares and enjoy the glorious step up in basis.
I get the FI part but not the RE part of FIRE.
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Re: Considering Berkshire Hathaway Stock

Post by secondopinion »

jjj_22 wrote: Mon May 16, 2022 9:37 pm Would you buy a mutual fund 20% of which was in Apple?
Right. Quite honestly, we could index their holdings if we really want to; this way, the risk is not taken in the actual company operations, which is an added risk.

But I would not recommend it.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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celia
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Re: Considering Berkshire Hathaway Stock

Post by celia »

OP, At 5%, you aren't risking that much and you already hold some other stocks, so I would say you should buy it. At age 24, there is a lot that can happen before you retire and even if it doesn't go as you expect, you have a lot of time to change to something else.

If you can go to the shareholder's meeting one time while both of them are still alive, that will be an experience you will always remember (first weekend in May). We were there this year with one of our adult kids and even though Warren and Charlie are slowing down, they still make a lot of sense.
Dave55
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Re: Considering Berkshire Hathaway Stock

Post by Dave55 »

tcb1005 wrote: Mon May 16, 2022 9:04 pm Hello Bogleheads,

I hope you are doing well. I am a 24 year old investor who has been following the three fund approach since 2020. It has served me well and I am pleased with my current asset allocation in retirement and taxable of 15% Total Bond Market, 68% Total US Stock Market, and 17% Total International stock market index. I have already maxed out my roth IRA contribution for the year.

My question to you is I have recently liquidated one of my legacy holdings in my taxable account, the Morgan Stanley Institutional Global Opportunity fund, MGGPX, which had an expense ratio of 1.2% (Yikes!). With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.

My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice? I do think in the long run the total stock market will outperform the vast majority of mutual funds and individual stocks in existence today over a 50 year period, however even with the recent tech crash I still believe many of the largest constituents of the total stock market index are still overvalued. I genuinely do think Berkshire is a company like no other, but would like to hear second opinions.

Thank you.
Stating the obvious, no one stock is a 'reasonably safe choice". As good as BRK has been, General Electric was the best stock and company for many years, then it tanked. Past 15 years you lost -4.37% annually. Many other great companies have traversed this same path. Your journey, your money.

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

Enron was believed to be a safe stock and there were many who had their entire retirement savings wrapped up in it.
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celia
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Re: Considering Berkshire Hathaway Stock

Post by celia »

For those who are cherry-picking some losers, I would say there were also substantial winners. It's easy to point out a loser in hind-sight. But, we're investing for the future here. Of course, there are no guarantees, but since stocks tend to go up over time, we might as well choose those that have better than average odds of doing well.
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Re: Considering Berkshire Hathaway Stock

Post by Harmanic »

I am mostly in index funds, globally diversified, and Berkshire is already one of my top holdings. All you are doing is increasing the concentration of stocks, like Apple and Microsoft, that already make up a large part of the indices. In fact, with Berkshire, you are also getting a larger stake in Apple. Morningstar's x-ray stock intersection features can be helpful in avoiding over concentration.
The question isn't at what age I want to retire, it's at what income. | - George Foreman
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

celia wrote: Tue May 17, 2022 1:18 pm For those who are cherry-picking some losers, I would say there were also substantial winners. It's easy to point out a loser in hind-sight. But, we're investing for the future here. Of course, there are no guarantees, but since stocks tend to go up over time, we might as well choose those that have better than average odds of doing well.
So you are saying that you know which stocks have better than average odds of doing well? If you know that, why doesn't the rest of the market know that? Only 4% of US stocks long-term produce returns greater than t-bills. That doesn't even mean they beat the S&P 500 - just that they are better than a riskless asset.
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

Dave55 wrote: Tue May 17, 2022 12:58 pm
tcb1005 wrote: Mon May 16, 2022 9:04 pm Hello Bogleheads,

I hope you are doing well. I am a 24 year old investor who has been following the three fund approach since 2020. It has served me well and I am pleased with my current asset allocation in retirement and taxable of 15% Total Bond Market, 68% Total US Stock Market, and 17% Total International stock market index. I have already maxed out my roth IRA contribution for the year.

My question to you is I have recently liquidated one of my legacy holdings in my taxable account, the Morgan Stanley Institutional Global Opportunity fund, MGGPX, which had an expense ratio of 1.2% (Yikes!). With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.

My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice? I do think in the long run the total stock market will outperform the vast majority of mutual funds and individual stocks in existence today over a 50 year period, however even with the recent tech crash I still believe many of the largest constituents of the total stock market index are still overvalued. I genuinely do think Berkshire is a company like no other, but would like to hear second opinions.

Thank you.
Stating the obvious, no one stock is a 'reasonably safe choice". As good as BRK has been, General Electric was the best stock and company for many years, then it tanked. Past 15 years you lost -4.37% annually. Many other great companies have traversed this same path. Your journey, your money.

Dave
Berkshire is not GE. Welch had a huge ego and bought businesses he knew nothing about and tried to manage them. Berkshire acquires businesses and leaves them alone. Berkshire buys durable businesses because it makes good business sense rather than to further inflate their ego. At one time Welch was praised in the business world. But now people see him what for what he really was……a person who was over their head and lacked true vision. Welch looked like a genius during a raging bull market that lifted all stocks.
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

About 50% of our investable assets are in Berkshire. We have owned the stock since the late 1970s.
Harmanic
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Re: Considering Berkshire Hathaway Stock

Post by Harmanic »

cegibbs wrote: Tue May 17, 2022 1:40 pm About 50% of our investable assets are in Berkshire. We have owned the stock since the late 1970s.
Given how well it has done since the 1970s, you would not have had to do much other than hold for it to drift up to 50% on its own, without even adding to it.

BTW: Congratulations!
The question isn't at what age I want to retire, it's at what income. | - George Foreman
miket29
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Re: Considering Berkshire Hathaway Stock

Post by miket29 »

tcb1005 wrote: Mon May 16, 2022 9:04 pm With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.
Even Bogleheads often hold a small percentage of their portfolio, say 10% or less, outside their 3-fund or similar portfolio and use it as "play" money to bet on stocks. So 5% isn't going to ruin your future.

Berkshire evaluation can go way beyond just looking at the P/E. Do a web search on "Berkshire intrinsic value" and you can see people that have sliced and diced it all kinds of ways.

I've owned BRKB for 20+ years and am happy with it. One other advantage is that if held in a taxable account it is twice free in the sense that
  • it is somewhat like a concentrated fund but you pay no annual fee
  • since there are no dividends or capital gains distributed you pay no taxes until you sell, and at that point they are capital gains
That all said, I don't know if it's the wisest investment going forward although I hope I'm wrong. I do believe Buffett and Munger have the "special sauce" but even they say it was much easier to grow Berkshire when it was smaller (which was decades ago). And every time the pundits appoint someone as the "next Warren Buffett" their track record does not match. Buffett and Munger are quite old and even if they've been able to outsmart Modern Portfolio Theory we won't know until decades from now if they've been able to find successors with the same abilities.
drk
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Re: Considering Berkshire Hathaway Stock

Post by drk »

celia wrote: Tue May 17, 2022 1:18 pm For those who are cherry-picking some losers, I would say there were also substantial winners. It's easy to point out a loser in hind-sight. But, we're investing for the future here. Of course, there are no guarantees, but since stocks tend to go up over time, we might as well choose those that have better than average odds of doing well.
Broad stock markets tend to go up over time, but the vast majority of individual stocks do not.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
niagara_guy
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Re: Considering Berkshire Hathaway Stock

Post by niagara_guy »

I have owned a few shares of brk.b for many years, I don't think it has kept up with the s&p 500 index since I bought it. It's about 3% of my portfolio, so it doesn't make much difference. Maybe I should have just stuck with the s&p 500 funds instead. (not complaining.)
speckledt
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Re: Considering Berkshire Hathaway Stock

Post by speckledt »

drk wrote: Tue May 17, 2022 1:51 pm
celia wrote: Tue May 17, 2022 1:18 pm For those who are cherry-picking some losers, I would say there were also substantial winners. It's easy to point out a loser in hind-sight. But, we're investing for the future here. Of course, there are no guarantees, but since stocks tend to go up over time, we might as well choose those that have better than average odds of doing well.
Broad stock markets tend to go up over time, but the vast majority of individual stocks do not.
Where is the data on that one?
drk
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Re: Considering Berkshire Hathaway Stock

Post by drk »

speckledt wrote: Tue May 17, 2022 2:05 pm Where is the data on that one?
Extreme claim (more recent): "80 Percent of Stocks Have A Lifetime Return of Zero"
Moderate claim (most recent): "a minority (49.2%) of common stocks have a positive lifetime holding period return"
Weaker claim (less recent): 39% of Russell 3000 constituents had a negative lifetime return (also covered on the board: viewtopic.php?t=159022)
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
donaldfair71
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Re: Considering Berkshire Hathaway Stock

Post by donaldfair71 »

speckledt wrote: Tue May 17, 2022 2:05 pm
drk wrote: Tue May 17, 2022 1:51 pm
celia wrote: Tue May 17, 2022 1:18 pm For those who are cherry-picking some losers, I would say there were also substantial winners. It's easy to point out a loser in hind-sight. But, we're investing for the future here. Of course, there are no guarantees, but since stocks tend to go up over time, we might as well choose those that have better than average odds of doing well.
Broad stock markets tend to go up over time, but the vast majority of individual stocks do not.
Where is the data on that one?
It's from the infamous Bessembinder Study.

https://wpcarey.asu.edu/department-fina ... sury-bills
WarAdmiral
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Re: Considering Berkshire Hathaway Stock

Post by WarAdmiral »

From their website: Berkshire - past, present and future.

https://www.berkshirehathaway.com/Speci ... TMLtr.html

This was year 2014:
Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources
will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At
that time our directors will need to determine whether the best method to distribute the excess earnings is
through dividends, share repurchases or both. If Berkshire shares are selling below intrinsic business value,
massive repurchases will almost certainly be the best choice. You can be comfortable that your directors
will make the right decision
If Berkshire, eventually becomes like Coca-Cola (KO) - with rock steady income stream and strong annual dividends. It could still be an attractive option for a portfolio.
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

It's funny, no one had any interest in Berkshire when tech was flying high in 2020 (Instead it was QQQ tilts). Now that tech is getting hammered and BRK is up for the year (despite AAPL), it is being touted as this miracle inflation hedge and diversified fund replacement.
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

burritoLover wrote: Wed May 18, 2022 10:13 am It's funny, no one had any interest in Berkshire when tech was flying high in 2020 (Instead it was QQQ tilts). Now that tech is getting hammered and BRK is up for the year (despite AAPL), it is being touted as this miracle inflation hedge and diversified fund replacement.

That’s a bold statement. We’ve owned it since the 1970s. Far and away our largest position.
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burritoLover
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Re: Considering Berkshire Hathaway Stock

Post by burritoLover »

cegibbs wrote: Wed May 18, 2022 11:54 am
burritoLover wrote: Wed May 18, 2022 10:13 am It's funny, no one had any interest in Berkshire when tech was flying high in 2020 (Instead it was QQQ tilts). Now that tech is getting hammered and BRK is up for the year (despite AAPL), it is being touted as this miracle inflation hedge and diversified fund replacement.

That’s a bold statement. We’ve owned it since the 1970s. Far and away our largest position.
Ok, let's say investors new to BRK.
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illumination
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Re: Considering Berkshire Hathaway Stock

Post by illumination »

To me it's no different than asking if Apple or Amazon is a good FUTURE investment because it did so well in the past. Or what about QQQ (NASDAQ 100) or a growth fund, an insane amount of return over the last 20 years, even with the pullback. Carl Icahn over the last 20 years has more than doubled Buffets total return.

I don't think Berkshire is a good investment to make today, much of this company is built around Warren Buffet's iconic status and that tail wind is not going to be there in the next few years. To me, the biggest attraction would have to the company is that it doesn't pay a dividend. It's like a value fund without the tax drag, would be great for estate planning and for people in the upper tax brackets, etc.

What is Berkshire going to be like post-Buffett? Nobody really knows what direction they'll go in. I've read something like over 40% of Berkshire is just in Apple? That's obviously a much different type of investing than it used to be engaged in, Buffett traditionally avoided tech companies.
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

illumination wrote: Wed May 18, 2022 12:39 pm To me it's no different than asking if Apple or Amazon is a good FUTURE investment because it did so well in the past. Or what about QQQ (NASDAQ 100) or a growth fund, an insane amount of return over the last 20 years, even with the pullback. Carl Icahn over the last 20 years has more than doubled Buffets total return.

I don't think Berkshire is a good investment to make today, much of this company is built around Warren Buffet's iconic status and that tail wind is not going to be there in the next few years. To me, the biggest attraction would have to the company is that it doesn't pay a dividend. It's like a value fund without the tax drag, would be great for estate planning and for people in the upper tax brackets, etc.

What is Berkshire going to be like post-Buffett? Nobody really knows what direction they'll go in. I've read something like over 40% of Berkshire is just in Apple? That's obviously a much different type of investing than it used to be engaged in, Buffett traditionally avoided tech companies.

I don’t know what you read but the stock portfolio is approximately 20% of Berkshire. The other 80% is a combination of fully owned subsidiaries and cash. Remember Berkshire owns outright several large insurance entities, BNSF, railroad, Berkshire Energy, etc.
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illumination
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Re: Considering Berkshire Hathaway Stock

Post by illumination »

cegibbs wrote: Wed May 18, 2022 3:52 pm
illumination wrote: Wed May 18, 2022 12:39 pm To me it's no different than asking if Apple or Amazon is a good FUTURE investment because it did so well in the past. Or what about QQQ (NASDAQ 100) or a growth fund, an insane amount of return over the last 20 years, even with the pullback. Carl Icahn over the last 20 years has more than doubled Buffets total return.

I don't think Berkshire is a good investment to make today, much of this company is built around Warren Buffet's iconic status and that tail wind is not going to be there in the next few years. To me, the biggest attraction would have to the company is that it doesn't pay a dividend. It's like a value fund without the tax drag, would be great for estate planning and for people in the upper tax brackets, etc.

What is Berkshire going to be like post-Buffett? Nobody really knows what direction they'll go in. I've read something like over 40% of Berkshire is just in Apple? That's obviously a much different type of investing than it used to be engaged in, Buffett traditionally avoided tech companies.

I don’t know what you read but the stock portfolio is approximately 20% of Berkshire. The other 80% is a combination of fully owned subsidiaries and cash. Remember Berkshire owns outright several large insurance entities, BNSF, railroad, Berkshire Energy, etc.

Maybe this is dated a few months, but here's an article saying it was at 40%


Image
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

illumination wrote: Wed May 18, 2022 3:58 pm
cegibbs wrote: Wed May 18, 2022 3:52 pm
illumination wrote: Wed May 18, 2022 12:39 pm To me it's no different than asking if Apple or Amazon is a good FUTURE investment because it did so well in the past. Or what about QQQ (NASDAQ 100) or a growth fund, an insane amount of return over the last 20 years, even with the pullback. Carl Icahn over the last 20 years has more than doubled Buffets total return.

I don't think Berkshire is a good investment to make today, much of this company is built around Warren Buffet's iconic status and that tail wind is not going to be there in the next few years. To me, the biggest attraction would have to the company is that it doesn't pay a dividend. It's like a value fund without the tax drag, would be great for estate planning and for people in the upper tax brackets, etc.

What is Berkshire going to be like post-Buffett? Nobody really knows what direction they'll go in. I've read something like over 40% of Berkshire is just in Apple? That's obviously a much different type of investing than it used to be engaged in, Buffett traditionally avoided tech companies.

I don’t know what you read but the stock portfolio is approximately 20% of Berkshire. The other 80% is a combination of fully owned subsidiaries and cash. Remember Berkshire owns outright several large insurance entities, BNSF, railroad, Berkshire Energy, etc.

Maybe this is dated a few months, but here's an article saying it was at 40%


Image
The percentage in the article specifically states 40% of the stock portfolio. And the stock portfolio is only 20% of Berkshire’s total assets. So many people do not understand Berkshire at all because they neither read shareholder reports nor listen to the shareholder meetings. Berkshire would much prefer to buy an entire business rather than the stock, but obviously there are instances when that is either imprudent in their judgment or impossible.
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BrooklynInvest
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Re: Considering Berkshire Hathaway Stock

Post by BrooklynInvest »

If there was one individual stock I'd own it would have been this.

But given Mr Buffett and Mr Munger's ages I personally wouldn't at this point. I have no doubt that the succession plan is as good as it can be but this is one of those instances where the name change on the marquee will cause a lot of investors to leave, even though the fundamentals would be unchanged.
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illumination
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Re: Considering Berkshire Hathaway Stock

Post by illumination »

cegibbs wrote: Thu May 19, 2022 3:57 am
illumination wrote: Wed May 18, 2022 3:58 pm
cegibbs wrote: Wed May 18, 2022 3:52 pm
illumination wrote: Wed May 18, 2022 12:39 pm To me it's no different than asking if Apple or Amazon is a good FUTURE investment because it did so well in the past. Or what about QQQ (NASDAQ 100) or a growth fund, an insane amount of return over the last 20 years, even with the pullback. Carl Icahn over the last 20 years has more than doubled Buffets total return.

I don't think Berkshire is a good investment to make today, much of this company is built around Warren Buffet's iconic status and that tail wind is not going to be there in the next few years. To me, the biggest attraction would have to the company is that it doesn't pay a dividend. It's like a value fund without the tax drag, would be great for estate planning and for people in the upper tax brackets, etc.

What is Berkshire going to be like post-Buffett? Nobody really knows what direction they'll go in. I've read something like over 40% of Berkshire is just in Apple? That's obviously a much different type of investing than it used to be engaged in, Buffett traditionally avoided tech companies.

I don’t know what you read but the stock portfolio is approximately 20% of Berkshire. The other 80% is a combination of fully owned subsidiaries and cash. Remember Berkshire owns outright several large insurance entities, BNSF, railroad, Berkshire Energy, etc.

Maybe this is dated a few months, but here's an article saying it was at 40%


Image
The percentage in the article specifically states 40% of the stock portfolio. And the stock portfolio is only 20% of Berkshire’s total assets. So many people do not understand Berkshire at all because they neither read shareholder reports nor listen to the shareholder meetings. Berkshire would much prefer to buy an entire business rather than the stock, but obviously there are instances when that is either imprudent in their judgment or impossible.
I was referring to their equity portfolio also.
cegibbs
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Re: Considering Berkshire Hathaway Stock

Post by cegibbs »

BrooklynInvest wrote: Thu May 19, 2022 9:08 am If there was one individual stock I'd own it would have been this.

But given Mr Buffett and Mr Munger's ages I personally wouldn't at this point. I have no doubt that the succession plan is as good as it can be but this is one of those instances where the name change on the marquee will cause a lot of investors to leave, even though the fundamentals would be unchanged.

The risk you noted is certainly legitimate. As a longtime BRK.B shareholder, I like that Warren and Charlie have avoided ridiculously overvalued stocks and have brought a tremendous amount of sanity and ethics to the investment process. It would certainly be reasonable for me to pair down my position to something less than 20% of my equities, but not sure how I would reallocate the funds because I don’t want most of my portfolio in TSM or S&P500. Nothing wrong with those indexes because I own the latter, but I’d prefer something that considers company quality and P/E evaluation.
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Re: Considering Berkshire Hathaway Stock

Post by Jack FFR1846 »

WarAdmiral wrote: Wed May 18, 2022 10:00 am
If Berkshire, eventually becomes like Coca-Cola (KO) - with rock steady income stream and strong annual dividends. It could still be an attractive option for a portfolio.
And if not, then, well, I guess BRK's 400 million shares of KO make them sort of like Coke by osmosis or ownership or something.
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Dave55
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Re: Considering Berkshire Hathaway Stock

Post by Dave55 »

cegibbs wrote: Tue May 17, 2022 1:39 pm
Dave55 wrote: Tue May 17, 2022 12:58 pm
tcb1005 wrote: Mon May 16, 2022 9:04 pm Hello Bogleheads,

I hope you are doing well. I am a 24 year old investor who has been following the three fund approach since 2020. It has served me well and I am pleased with my current asset allocation in retirement and taxable of 15% Total Bond Market, 68% Total US Stock Market, and 17% Total International stock market index. I have already maxed out my roth IRA contribution for the year.

My question to you is I have recently liquidated one of my legacy holdings in my taxable account, the Morgan Stanley Institutional Global Opportunity fund, MGGPX, which had an expense ratio of 1.2% (Yikes!). With the proceeds of this sale, I am considering purchasing shares of Berkshire Hathaway. While generally I am against buying individual shares of companies (although I do have small holdings in MasterCard and Union Pacific), Berkshire intrigues me because it is similar to a 0 expense ratio mutual fund in many ways. Berkshire Hathaway had net income of ~90 billion per it's 2021 annual report. Given a market cap of ~683 billion according to Morningstar, I calculate a P/E ratio of roughly 7.6, versus a P/E ratio of around 19 for the S&P 500.

My question, despite the fact that I enjoy investing generally in well diversified index mutual funds, would placing a small amount of my investment portfolio (Roughly 5%) in Berkshire Hathaway be a reasonably safe choice? I do think in the long run the total stock market will outperform the vast majority of mutual funds and individual stocks in existence today over a 50 year period, however even with the recent tech crash I still believe many of the largest constituents of the total stock market index are still overvalued. I genuinely do think Berkshire is a company like no other, but would like to hear second opinions.

Thank you.
Stating the obvious, no one stock is a 'reasonably safe choice". As good as BRK has been, General Electric was the best stock and company for many years, then it tanked. Past 15 years you lost -4.37% annually. Many other great companies have traversed this same path. Your journey, your money.

Dave
Berkshire is not GE. Welch had a huge ego and bought businesses he knew nothing about and tried to manage them. Berkshire acquires businesses and leaves them alone. Berkshire buys durable businesses because it makes good business sense rather than to further inflate their ego. At one time Welch was praised in the business world. But now people see him what for what he really was……a person who was over their head and lacked true vision. Welch looked like a genius during a raging bull market that lifted all stocks.
Nisiprius articulates the point here in his usual eloquent way:
viewtopic.php?p=6687391#p6687391
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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