No. of Recommendations: 0
Whatsup with BRK/B

Equity Summary Score: Bearish (1.3)
Provided by Investars AS OF 04/23/2019

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No. of Recommendations: 2
1 Year Equity Summary Score Price Performance Opinions

Period                   Action     From                To                  Period   Price        S&P 500      Russell 3000
Length Performance Performance Performance
03/20/2019 - 04/22/2019 Upgrade Very Bearish (0.7) Bearish (1.5) 33 days 2.12% 2.66% 2.43%
03/07/2019 - 03/19/2019 Downgrade Bearish (2.8) Very Bearish (0.7) 13 days 2.23% 2.21% 2.08%
02/15/2019 - 03/06/2019 Downgrade Neutral (5.9) Bearish (2.8) 20 days -1.04% 0.94% 0.72%
01/08/2019 - 02/14/2019 Upgrade Bearish (3) Neutral (5.9) 38 days 2.98% 7.69% 8.27%
01/05/2019 - 01/07/2019 Downgrade Neutral (3.9) Bearish (3) 3 days 0.88% 0.70% 0.86%
01/04/2019 - 01/04/2019 Upgrade Bearish (2.5) Neutral (3.9) 1 days 1.85% 3.43% 3.46%
12/26/2018 - 01/03/2019 Downgrade Neutral (3.6) Bearish (2.5) 9 days 2.08% 4.12% 4.21%
12/21/2018 - 12/25/2018 Upgrade Bearish (2.6) Neutral (3.6) 5 days -3.01% -4.71% -4.69%
11/21/2018 - 12/20/2018 Downgrade Neutral (5.8) Bearish (2.6) 30 days -8.13% -6.60% -6.87%
09/12/2018 - 11/20/2018 Upgrade Bearish (2.6) Neutral (5.8) 70 days -2.04% -8.52% -9.38%
08/08/2018 - 09/11/2018 Downgrade Neutral (4.4) Bearish (2.6) 35 days 3.06% 1.03% 1.15%
07/11/2018 - 08/07/2018 Upgrade Bearish (1.8) Neutral (4.4) 28 days 9.91% 2.31% 1.94%
06/13/2018 - 07/10/2018 Downgrade Neutral (4.1) Bearish (1.8) 28 days -2.75% 0.25% 0.27%
06/07/2018 - 06/12/2018 Upgrade Bearish (1.5) Neutral (4.1) 6 days 0.66% 0.52% 0.53%
05/30/2018 - 06/06/2018 Upgrade Very Bearish (0.9) Bearish (1.5) 8 days 2.17% 3.07% 3.10%
05/17/2018 - 05/29/2018 Downgrade Bearish (1.4) Very Bearish (0.9) 13 days -4.02% -1.20% -0.95%
05/09/2018 - 05/16/2018 Upgrade Very Bearish (0.8) Bearish (1.4) 8 days 0.81% 1.89% 1.82%
05/02/2018 - 05/08/2018 Downgrade Bearish (3) Very Bearish (0.8) 7 days 1.52% 1.38% 1.50%

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No. of Recommendations: 14
Random notes and speculations...

Probably still because last year's results looked bad, at a guess.
Historically (and not nonsensically), the market multiple tends to be poor when recent results have been weak and vice versa.

Berkshire's stock portfolio went down a lot in Q4, which hit both headline EPS (for the dumbest money) and book value (for the slightly smarter money).

The end Q1 book value is likely to be somewhere similar to the same level as at end Q3 last year, undoing the Q4 damage. My guess is up maybe 6.9%.
Still not that great, really, as that means six months of no visible progress.
They will likely be their best six months ever in operating earnings, but multiples may remain lowish for a while yet.

Why are brokers not fond of it?
It's a really boring stock that it's not really worth trading in a conventional sense. Its charms are mainly long run steady value growth.
You can't make money as an investment advisor with it, as its best use is simply to throw it into a portfolio and forget about it.
No commissions, and even if you don't care about those your clients will say "I know what to do now, just give me my money back". (I had this happen).
For those reasons, Wall Street types don't usually say very much meaningful about them.
Unless it's unusually cheap or unusually expensive, predicting the return a year out is nearly impossible.
That's the only time frame most money managers care about.
Who cares to notice that the likely average return for the next five years is quite predictable, and likely higher than that of the average stock?

For some reason, Berkshire's cycles of outperformance and underperformance seem to start or end around year ends.
This year's theme seems to be "become an underperformer starting in January".
Here's a five year graph of the ratio of BRK and the SPY total return series.
Flat line = same performance.
Notice how many multi-month direction changes seem to line up with year ends. Especially start and end of 2015.
In any case, Berkshire was a big outperformer the latter part of 2018, and has been a big underperformer into 2019.

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No. of Recommendations: 2
I don't really pay much attention to spam mail, but this one caught my eye:

"Consider the example of value investing icon Warren Buffett.

Over the past decade, Buffett's Berkshire Hathaway (NYSE: BRK-B) has returned 13.30% per year. This trails the 15.08% annual returns of the S&P 500 by close to 2%.

The contrast with the tech sector is even more startling. Over the past 10 years, the tech-heavy Nasdaq index has generated an average return of 20.04% per year.

That means that the Oracle of Omaha has trailed the U.S. tech index by an average of 6.74% every year since 2009!..."

Further on...

"Andreessen points out that the secret to Buffett's success is that he bets against change. Every Buffett investment assumes that things will go on pretty much as they always have.

By investing in the Kraft Heinz Company (Nasdaq: KHC) and the Coca-Cola Company (NYSE: KO), Buffett is betting that U.S. consumers will continue to eat hot dogs with ketchup and drink Coke, just as they have in the past.

According to Buffett's philosophy, consistent profits generated by businesses with wide moats trump "story stocks" over the long run.

Andreessen's philosophy is the exact opposite.

Sitting atop his perch on Sand Hill Road in Palo Alto, California, Andreessen bets exclusively on ideas that he expects will change the world.

Andreessen's highest-profile investments, Facebook (Nasdaq: FB) and Twitter (NYSE: TWTR), barely existed a decade ago.

At least five of Andreessen's unicorns - Airbnb, Lyft, PagerDuty, Pinterest and Slack - will go public in the next 12 months.

Put another way...

Buffett created massive value for Berkshire Hathaway shareholders over the past 50-plus years. But Buffett has never invested in anything that has changed the world...."

THE MARKET LOOKS FORWARD. When Fools like rdutt talks about TWLO, AYX, MDB, OKTA, NTNX, SQ, TTD, and AMZN, he's looking forward. IMHO, this is why many value (at least mine) screens work like absolute garbage.

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No. of Recommendations: 19
Buffett created massive value for Berkshire Hathaway shareholders over the past 50-plus years. But Buffett has never invested in anything that has changed the world....

It's a fair point.
Berkshire does not invest in things that grow in value particularly quickly.
Despite occasionally buying something while it's really cheap, it's pretty certain they can't and won't have a really high growth rate in future.
Their rate of growth has been remarkably constant since 1998, when they did a big transformative acquisition.
Their days of fast growth ended 20 years ago.

Berkshire's main knack is merely investing in things that tend to have very long streams of earnings well into the future. (and not overpaying for them)
No investment of theirs in the last 50 years has caused a permanent loss over 1% of the portfolio size, which is quite a trick.
Since few of the things they buy ever stop earning, the rate of earnings stacks up and compounds.
Use the cash in hand to buy something that throws off money, wait till the cash piles up again, repeat at a bigger scale.
This doesn't provide get-rich-quick opportunities, but it has a certain attractive inexorability.

As for the S&P, sure, it has done better than Berkshire for quite a few time frames in market total return.
Better than almost any other choice in the investing world, lately.
But a lot of that result is because the S&P got more expensive and Berkshire didn't.
If you're smart enough to sell while prices are high, expanding valuation multiples are a great way to make money, of the "take it home and spend it" kind.
But for long holds your return never exceeds (well, asymptotically approaches) the rate of value creation.
Berkshire's value has been going up at around inflation plus 8-9%/year for the last 5-20 years, at a fairly constant rate.
The S&P 500 value hasn't gone up nearly that fast.

Let's say we take a baseline year that was not top or bottom of cycle for either, start of 2006.
How much has the value of the S&P 500 index risen since then?
S&P real sales are up inflation + 1.39%/year in 13 years. That's the pessimist's figure, which assumes currently high net margins will mean revert a lot.
S&P smoothed real earnings are up inflation + 3.26%/year. That's usually a sane metric.
For the optimist, maybe add another 1%/year for the roughly 10% one-time boost in earning power value from the tax changes.
Add around 2%/year for dividends, since the figures above are valuation metrics for the index alone.
But the S&P price has done much better than this because of expanding valuation multiples. The multiple of smoothed real earnings rose over 20% since then, for example.

For comparison, a fairly decent valuation metric for Berkshire is up in the same time period inflation + 7.97%/year.
That metric is basically the current market value of investments per share, plus a multiple of pre-tax earnings per share on operations not related to investments.
Book per share is up inflation + 8.27%/year.
The market price return was between those two figures, so within rounding error it got neither more expensive nor cheaper.

So, very round numbers, I'd say that Berkshire has been generating value at around 2.5-3%/year faster rate than the S&P 500 total return,
but the S&P has been getting more expensive at maybe that same rate, in round numbers leading to a tie in market total return.
An advantage of 2.5-3% isn't much, but it's better than a kick in the head.
For a buyer today, the other advantage is that Berkshire isn't overvalued, in absolute terms or relative to its history.
There is no one-time stretch of poor performance to anticipate because of the end of a stretch of stretched valuations.
It's much harder to make that case for the broad US market.
So...back to the quote..."the market looks forward". It's the future that matters, not the past.
The past matters only to the extent that it can help us understand how we got where we are, and whether those effects are likely to be smaller, the same, or larger in the years to come.
Starting from here, performance for Berkshire between now and after the dust settles on the next bear is likely to be better than for the S&P.
That's because it's less likely to suffer a one time fall in valuation multiples, and likely to continue to grow in value at a slightly higher rate.
Those aren't sure things, but they're sensible central expectations based on how the past informs us of how we got to where we are.

In case anybody is interested, here are some recent figures of that valuation metric for Berkshire.
This is just a yardstick, not an estimate of fair value. Think of it as fair value multiplied by some unknown constant.
That being said, when you pay much more than this number you tend to get ho-hum returns for a year or two, then the trend rate of value growth.
When you pay much less than this number you tend to get excellent returns for a year or two, then the trend rate of value growth.
That's more or less true of any investment with a market price, but it's just easier to find a decent metric for BRK.

2001     67354
2002 76604
2003 85125
2004 87066
2005 89134
2006 106512
2007 117409
2008 108433
2009 116676
2010 133482
2011 147259
2012 172482
2013 205344
2014 232809
2015 249006
2016 264333
2017 301672
2017 307973
2018 307678

2018 looks crappy, in large part because of the market sell-off in Q4.
Given the recent market rebound, I'm guessing the metric at end Q1 will likely be in the vicinity of $332000.
A simple trend line through the data set suggests a metric of 347664 at year end, and 381910 end next year.
These are nominal numbers, not inflation adjusted.
As an aside, this table more or less coincidentally corresponds to my own period of BRK ownership.
My first block of shares started at around that price.

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No. of Recommendations: 5
When Fools like rdutt talks about TWLO, AYX, MDB, OKTA, NTNX, SQ, TTD, and AMZN, he's looking forward. IMHO, this is why many value (at least mine) screens work like absolute garbage.

As an aside, I think of that view of "value" as a bit of a red herring. Or at least a misleading herring.

Almost any firm, whether perceived as "value" or not, whether at a low P/E or a high one, is probably usually worth something in the vicinity of 11-12 times the earnings five years from now.
A pinch more if growth is expected to be unusually high even more than five years out, but that's rarely any where near predictable.
If earnings per share are going to be flat in real terms, buy at a P/E of 11-12 tops.
If earnings per share are pretty darned sure to double, buy up to a P/E of 22-24 tops. Emphasis on "pretty sure".

So maybe you really only need one rule for valuation multiples: just apply it to where the puck will be, not where it is.

The problem is that it's so danged hard to have high confidence of where earnings are headed for any given firm.
My investments are conservative/"value" oriented mainly for that reason.
From among those few firms I have high confidence in predicting out five years, I pick the ones with the highest ratio of future earnings to price today.
Sometimes they are at high current P/E ratios, but not that often.
Not because I eschew paying high multiples, but because future growth is hard to predict. Usually, the higher the growth rate people are seeing, the wider the error bars.
Emphasis on "pretty sure".

In theory this is just a variant statement of the PEG ratio or GARP approaches.
But I haven't found a quant approach that captures it decently.
It's easy enough to find predictions of earnings growth rates, but you can't find predictions of how good those predictions are.
For example, Value Line's "projected 5 year annual total return" field is almost exactly what I described above.
They calculate that weekly from the projected price 3-5 years out (based on a typical multiple of a forecast/extrapolated metric), and the current price.
But it makes terrible screens. Top stocks by that field are underperformers for short holds.
So much so that they make a remarkably nice short screen.

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No. of Recommendations: 0
Hi Jim,
I was just wondering in you prior post #273917 on BRK if you meant to post two separate BRK Metric values for 2017, or was this a typo.
I know that you follow BRK closely and greatly respect your opinions and past investing advise (on this and other boards) and the metrics that you use.

" . . .
2014 232809
2015 249006
2016 264333
2017 301672
2017 307973
2018 307678 "

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