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Those posts melted away. I think I know why...

Todd
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BRK is still tracking the average S&P firm.
Plus or minus minor squiggles it has been one for one since mid May last year.

In effect there is no BRK rally, BRK is just participating fully in a market rally.
There is nothing about the price increase which arises from an increased
appreciation of the merits of Berkshire compared to other firms.
Thus I expect a price pullback on BRK when the market has its pullback.
I'm not going to act on that expectation, but that's what I expect.

Over longer time periods, over a year, the correlations fade away and
this sort of close tracking is pretty meaningless.

Jim
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BRK is up 22% since mid-May, while SPY is only up 12%.

There is a positive correlation between the two, but that doesn't mean that one cannot perform much better than the other.
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BRK is up 22% since mid-May, while SPY is only up 12%.

BRK and the average S&P 500 company's stock are both up the exact same amount since mid May last year.
The weighting of SPY is dominated by a few gigantic firms that have done better.
I don't have any particular reason to favour a gigantic firm over a
merely large one so I find the "average" firm a much more meaningful benchmark.
RSP tracks the S&P Equal Weight index.

Jim
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Those posts melted away. I think I know why...

Todd


both will fall at different rates as well. the top is somewhere near.

Dave
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In effect there is no BRK rally, BRK is just participating fully in a market rally.
There is nothing about the price increase which arises from an increased
appreciation of the merits of Berkshire compared to other firms.


I was just looking at CNA Q4 results and realized it is also at a 52 week high. And it is not as if CNA has posted inspiring results. If the market was displaying even moderate enthusiasm for Berkshire we would probably be closer to $170K than $150K.
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BRK and the average S&P 500 company's stock are both up the exact same amount since mid May last year.
The weighting of SPY is dominated by a few gigantic firms that have done better.


How can SPY only be up by 12% if the companies that have a high weight in it outperformed BRK, which is up 22% ? Doesn't add up.
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How can SPY only be up by 12% if the companies that have a high weight
in it outperformed BRK, which is up 22% ? Doesn't add up.


I am sure Jim will give you a better and more detailed answer than mine
but I think he means that the equal weighted average return is 22%.
The confusion seems to be arising from the fact that the S&P 500 is a
value weighted average. For example, consider a stock market with just 2
stocks - A & B. A has a market cap of $100 billion while B has a market
cap of just $10 billion. Assume that A has just returned 10% over the
last year while B has returned 30%. Then the value weighted average
(equivalent of the S&P 500) return would be (100/110)*10 + (10/110)*30 =
11.82% while the equal weighted average (the equivalent of the average
company's return) would just be 1/2*10 + 1/2*30 = 20%.

The difference between the 12% and 22% is because small cap stocks in the
S&P 500 (a bit of an oxymoron?) have done much better than the large cap
ones. Interestingly, a glance at Ken French's website tells me that SMB
last year was only 0.59% so this apparently was not true for the broader
market.
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physdude, I get what you say about weighted averages, but as you correctly point out, the smaller companies have to outperform the bigger ones for the non-weighted average to be 22% if the weighted one is 12%. Jim stated the opposite, and that's why I said that the numbers do not add up.
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Jim stated the opposite, and that's why I said that the numbers do not add up.

The only calculation I did was on the equal weight figures, which are almost identical to those for Berkshire.
My comment was merely that if one gets a different result with a cap-weighted index
that's because of differential performance of the few multigigacaps that utterly dominate it.

If I said "higher" or "lower" backwards it's just a typo in that one spot (sorry).
I didn't even look to see whether SPY had been worse or better, as I don't follow it that way.

Now that I have a look, it's clear that those few giants have been
underperforming the typical large cap since about the start of October.
Not sure how much of that is just Apple alone, as their underperformance started then too.

Jim
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If I said "higher" or "lower" backwards it's just a typo in that one spot (sorry).
I didn't even look to see whether SPY had been worse or better, as I don't follow it that way.



This is what you said:

BRK and the average S&P 500 company's stock are both up the exact same amount since mid May last year.
The weighting of SPY is dominated by a few gigantic firms that have done better.


So your main point was quite correct, that BRK and avg SPY stocks were up the same amount. But the weighting of SPY towards the biggest of the large caps brought down the regular SPY index because the few gigantic firms have done worse, not better, Apple being indeed a prime example.

For the record, since mid-May (the original comparison, although I don't know what's so special about mid-May), we have:

BRK.B: +23.9%
SPY (regular S&P 500): 13.4%
RSP (S&P 500, equal wt): 17.7%
AAPL: -17.6%

with the latter obviously dragging down the SPY more than the RSP, since its weights are .2% and 3-5%, respectively (the latter depending on which of Apple's market caps we are talking about, since it has changed a fair bit recently.) At 5% of the index, Apple's almost 20% drop would have accounted for 1% out of the 4.3% difference between SPY and RSP, almost a quarter of it. Scanning over the other mega-caps in the list of the 10 biggest (as of Dec 31st, 2012), I can't see any that would account for much of the discrepancy: XOM, GE, CVX, IBM, MSFT, JNJ, T, GOOG, PG - they all look ok.


Regards, DTM
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(the original comparison, although I don't know what's so special about mid-May)

Nothing magic.
That's just the length of time I noticed that BRK's performance has been (other than little squiggles) the same as the average S&P firm.
e.g., assuming reinvested dividends without taxation for RSP, from 2012-05-18 to 2013-02-14
BRK +24.5%
RSP +24.6%

It's fun to find interesting endpoints. There have been LOTS of squiggles
in the 8.3 years since 2004-11-03 but the two are exactly tied since then too.
I wouldn't ascribe too much meaning to it.


But the weighting of SPY towards the biggest of the large caps
brought down the regular SPY index because the few gigantic firms have
done worse, not better, Apple being indeed a prime example.


As a tangentially related subject, one really simple way to beat the
S&P is to buy either SPY or RSP, whichever did best the prior calendar month.
Trends of gigacap outperformance tend to persist a bit.

A third choice is PRF, again mostly the same stocks but with a again a
very slightly different weighting towards extra large cap value.
A strategy of buying whichever of those three did best last month has
done very nicely indeed. I first suggested that idea in Nov 2006.
Since then it has beat the average of the 3 choices by 2.63%/year.
Better than most mutual funds, I imagine.

For the obsessive, a most impressive strategy is 2x whichever of the 3
choices did best the prior month and 1.75x short whichever did worst.
Amazingly steady returns, though not always high returns.
12.7%/year since June 2003 versus 6.78%/year for SPY. Not bad for being only 25% net long.

Jim
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