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Berkshire produced its own value 3 times, versus the S&P500 producing its
own value 2 times over the last decade (50% more additional value) as I
wrote, however I reported the after inflation values incorrectly.

Inflation over the last decade was 2% with the individual years:
(1.021 * 1.025 * 1.014 * 0.999 * 1.016 * 1.016 * 1.029 * 1.016 * 1.026 * 1.0 * 1.043)

So that is 22% of the value being inflation. We have to subtract that (not
divide as I had done) to work out the real difference between how much value
the S&P500 produced and how much value Berkshire produced.

When looking at after inflation figures, the differences in performance between
different assets becomes more apparent.

One decade of: Additional value produced: Same, after 22% inflation (real value):
Berkshire 3 times 2.78 times
S&P500 2 times 1.78 times

So Berkshire produced 2.78/1.78 = 1.56 times the additional value than the S&P500.
In other words, if the market was actually efficient (which is far, far from
being - in fact, it is horrendously inefficient but just so long to work things
out, other than the meaningless month to month movements, that it deludes many
into thinking it is efficient) then Berkshire would have made 1.56 times the
total income (capital gains and dividends) that an index fund would have made
if selling both after 10 years.

Factoring tax, the difference is more marked again, because the S&P500 pays
out dividends which are taxed more than capital gains, and my chart of the
accumulated value is before tax for both Berkshire and the S&P500:
http://www.scotscliff.com/manlobbi/BAM%20Accumulated%20Value...

By the way, given that real earnings increase at about 1.5% per year over long
periods of time, but inflation averaged about 4%, and let's say it goes on to
average 3% for the next decade (I believe it will be slightly lower but I'm in
a minority so I'll go with consensus for this argument), do you know what your
after-tax return is for capital gains? Astonishingly this is rarely spelt out,
if ever at all. Even factoring the small advantage of deferring tax, your capital
gain over a period such as 20 years is completely removed by tax payment and
most people end with a negative real after tax return from capital gains through
index investing, and slightly positive after the after-tax dividends are paid out.

As an example, let's say there is 3% inflation for the next 20 years, and
1.5% earnings growth on top of that. That is a capital gain of 1.045^20 = 2.4 x
times your starting capital (capital gain of 1.4 times starting capital).
But let's say you pay 40% tax at the end of these 20 years, feeling good
that you deferred your tax so long. Well anyway, you pay a tax of 0.4 * 1.4 = 0.56
times your starting capital. Your after-tax capital gain is 1.4 - 0.56 = 0.94 x starting
capital. But take out inflation of 1.03^20 - 1 = 0.8 x starting capital, and
you are left with an after-tax after inflation return of 0.94 - 0.8 = 0.14 x
starting capital. So despite the deferred tax, your after tax real CAGR is
only 1.14^(1/20) = 0.6% per year. Effectively the tax in most cases eats the
entire capital gain - tricky, as they tax your post inflation return. What
you get out of the investment is not so bad considering that the dividends are
on top of this, but it is incredible how the public at large have a few of
long term capital gains being good.

The story is worse for non-productive assets like gold, which is also taxed
before inflation, and so holding gold actually has a inherent long-term real
value destructive effect that cannot be escaped, and the more inflation there
is, the worse gold in this regard contrary to the usual sayings.

This is more the reason why market outperformance over long periods of time
is crucial to actually making money in investing.

But it can be done. I believe that I'll find it easier to outperform than
I have in the past given the approaching environment of negative real
returns with the broad market, now having such an an excessive PE ratio
based on trend earnings.

I expect vastly lower personal returns nevertheless, as I will be taken
down by the tide in the midst of such outperforming. Make sure you
are swimming rater than doggie-paddling - if you are holding the broad
market, or looking at things that have been rising in value and then
extrapolating - beware. Find something that is Steadfast (earnings
predicable for 20 years), even if it removes 99% of what you see, don't
worry about the IV/price ratio - how cheap it looks at the moment compared
to the market's continuously modelled IV, but rather calculate IV10
(IV as likely to be viewed by the market 10 years out) and compared
IV10 to the price today (IV10/price). Find two or three of these high
IV10/price ratio Steadfast situations, and hold in *very* high
concentration, and wait. If the IV10/price ratio changes from the
quotes rising, move capital from low IV10/price situations to higher
ones. This is the Manlobbi Method. You will outperform the market
substantially.

- Manlobbi
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