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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 214617  
Subject: How I've done investing in Berkshire Date: 11/5/2012 7:48 AM
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Not sure if anybody is interested, but here's a retrospective.

I build the bulk of my position in Berkshire during August and September 2001, 11.2 years ago.
The "most recent quarterly book value per share" has grown 10.0% per year since then.
SPY total return without taxes has grown 5.0%/year, exactly half.
Had I actually bought SPY I'd have managed about 4.4% because of 30% tax on dividends.

The price of Berkshire, alas, has grown at only 6.5%/year
because of the valuation compression: price/book has shrunk from 1.67x to 1.17x.
At least that process appears to be over—3.5% a year drag is, well, a drag.
About 91% of the time since the buckback authorization the market price
has been above 1.13 times the most recent known quarterly book value,
so that seems to be the new "squishy floor" most of the time.
(that's about $126250 right now—downside seems pretty limited).

Here are the figures in inflation-adjusted terms:
BRK Book +7.4%/year
BRK Price +4.0%/year
S&P index +0.7%/year
SPY total return +2.5%/year
SPY total return after dividend tax +2.0%/year

My actual returns have been a few percent better because of buying on dips and
selling on strength, as well as collecting option premiums in recent years.
It works, though I have to admit it's a lot of work.

Returns have definitely been less than I had hoped when I allocated the capital.
But of course the starting date was mildly overvalued and the ending
date is substantially undervalued so there should be a compensating
period of rebound price outperformance coming at some point.
If price/book were what it was when I bought, the price would be $186700 now.
If you count the modest number of out-of-the-money call options I've
bought as "high quality lottery tickets", my share count is bigger now
than it has ever been, though not in terms of capital allocated.

The good news is that time is the friend of the good company.
For those who like B shares, a number to stick in your head: fair value is probably
rising 80 cents a month on trend and will manage at least that indefinitely.
Since the period of multiple compression is over, the price should manage at least that too.
That's 11% of today's price, though it will shrink as a percentage as
the price and value rise. Maybe a buck a month in 6 or 7 years?

Jim
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