The Buffett Hype

[william the wie]

The promotion of Berkshire Hathaway as a good investment since for the past 15 years it has been a poor substitute for an S&P index fund. The in company and non-company analysis of why this is so are compatible with each other.

Munger and Buffett more or less openly admit that as a pool of capital BH is so large and the minimum size for material investment so large that rarely are they able to make intelligent investments anymore but the company still works as a tax shelter for large investors who make up the vast majority of their stockholders. This argument is called diseconomies of scale.

Outside analysts tend to go with the argument that Buffet and to a lesser degree Munger realized early on that direct investment of free reserves from insurance made it possible to take low volatility, cashflow rich companies private. Munger championed the position that for large investors liquidity was mostly an illusion. Around 1998 the commoditization of insurance had reduced free reserves sufficiently that in combination with the growth of private equity funds made the Buffett-Munger model largely outdated.

So no one seriously proposes that a Berkshire Hathaway stock buy back program makes any sense and if even BH shouldn't buy BH why should anyone else?

 

[AmazonTania]

I think Berkshire Hathaway is a good vehicle for Warren Buffett to avoid paying taxes. The company probably isn't buying the shares back because they believe the shares are going to be more expensive in the near future.

 

[EdwardBaiamonte]

The promotion of Berkshire Hathaway as a good investment since for the past 15 years it has been a poor substitute for an S&P index fund. The in company and non-company analysis of why this is so are compatible with each other.

Munger and Buffett more or less openly admit that as a pool of capital BH is so large and the minimum size for material investment so large that rarely are they able to make intelligent investments anymore but the company still works as a tax shelter for large investors who make up the vast majority of their stockholders. This argument is called diseconomies of scale.

Outside analysts tend to go with the argument that Buffet and to a lesser degree Munger realized early on that direct investment of free reserves from insurance made it possible to take low volatility, cashflow rich companies private. Munger championed the position that for large investors liquidity was mostly an illusion. Around 1998 the commoditization of insurance had reduced free reserves sufficiently that in combination with the growth of private equity funds made the Buffett-Munger model largely outdated.

So no one seriously proposes that a Berkshire Hathaway stock buy back program makes any sense and if even BH shouldn't buy BH why should anyone else?

perhaps because shares have gone from 100,000 to 180,000 in last 2 years???

 

[william the wie]

I think Berkshire Hathaway is a good vehicle for Warren Buffett to avoid paying taxes. The company probably isn't buying the shares back because they believe the shares are going to be more expensive in the near future.

True but BH's core non-officer shareholders are former holders of Graham-Newman or their heirs. That fund on average beat the DJIA 4 to 1 1926-56. Graham quit when he and his protégés had made it impossible for anyone else to set that kind of record again. That's the mark Buffett is compared to.

 

[Toro]

The promotion of Berkshire Hathaway as a good investment since for the past 15 years it has been a poor substitute for an S&P index fund. The in company and non-company analysis of why this is so are compatible with each other.

Munger and Buffett more or less openly admit that as a pool of capital BH is so large and the minimum size for material investment so large that rarely are they able to make intelligent investments anymore but the company still works as a tax shelter for large investors who make up the vast majority of their stockholders. This argument is called diseconomies of scale.

Outside analysts tend to go with the argument that Buffet and to a lesser degree Munger realized early on that direct investment of free reserves from insurance made it possible to take low volatility, cashflow rich companies private. Munger championed the position that for large investors liquidity was mostly an illusion. Around 1998 the commoditization of insurance had reduced free reserves sufficiently that in combination with the growth of private equity funds made the Buffett-Munger model largely outdated.

So no one seriously proposes that a Berkshire Hathaway stock buy back program makes any sense and if even BH shouldn't buy BH why should anyone else?

In July 1998, BRK.B was trading at $70,105. Today it is at $172,201. That is a return of 176%. The S&P 500 was at 1142.97 at the end of July 1998. Today it is at 1631.89. That is a return of 43%. Dividends have averaged ~2% per year. Compounded, that's about 34%. Dividends reinvested, the S&P 500 has roughly doubled over the past 15 years. Thus, investing in BRK.B rather than the S&P 500, an investor would have roughly 50% more money.

 

[william the wie]

liquidation plays which BRK is shouldn't work that way, sounds like a great put play.

 

[Kimura]

The promotion of Berkshire Hathaway as a good investment since for the past 15 years it has been a poor substitute for an S&P index fund. The in company and non-company analysis of why this is so are compatible with each other.

Munger and Buffett more or less openly admit that as a pool of capital BH is so large and the minimum size for material investment so large that rarely are they able to make intelligent investments anymore but the company still works as a tax shelter for large investors who make up the vast majority of their stockholders. This argument is called diseconomies of scale.

Outside analysts tend to go with the argument that Buffet and to a lesser degree Munger realized early on that direct investment of free reserves from insurance made it possible to take low volatility, cashflow rich companies private. Munger championed the position that for large investors liquidity was mostly an illusion. Around 1998 the commoditization of insurance had reduced free reserves sufficiently that in combination with the growth of private equity funds made the Buffett-Munger model largely outdated.

So no one seriously proposes that a Berkshire Hathaway stock buy back program makes any sense and if even BH shouldn't buy BH why should anyone else?

In July 1998, BRK.B was trading at $70,105. Today it is at $172,201. That is a return of 176%. The S&P 500 was at 1142.97 at the end of July 1998. Today it is at 1631.89. That is a return of 43%. Dividends have averaged ~2% per year. Compounded, that's about 34%. Dividends reinvested, the S&P 500 has roughly doubled over the past 15 years. Thus, investing in BRK.B rather than the S&P 500, an investor would have roughly 50% more money.

^^^^
This.