BERKSHIRE’s INVESTING MINDSET
Towards the end of Benjamin Graham’s book, The Intelligent Investor, we can find the following advice (Chapter 20 – Margin of Safety):
Investment is most intelligent, when it is most businesslike.
Therefore, to find good investments one must use a businesslike perspective. Only such a perspective will lead to satisfying long term returns.
I compare Berkshire Hathaway (BRK.A) (BRK.B) and the S&P 500 index (SPY) applying a common sense, businesslike perspective. Over the long term, investing based on sound business principles should lead to healthy long term returns. Those principles include:
- Seeking a high return on invested capital.
- Buying when there is blood on the streets.
- Careful risk assessment.
- Accepting that markets and sectors are cyclical.
- Being greedy when others are fearful and fearful when others are greedy.
The above, leads me to believe, BRK will outperform the S&P 500 and passive investors should invest more in BRK, than in index funds. In the video I give 5 strong arguments that back my case.
The video summary:
(1:03) Comparison of past performance
(3:44) First argument – S&P 500 and BRK’s investing strategies
(5:32) Index funds can’t copy Buffett’s special deals
(6:27) Second argument – market timing, discipline and cash
(7:31) Return on invested capital
(8:07) Third argument – S&P 500 top 10 holdings in 2018, 2013, 2008 and 1999
(9:26) Fourth argument – Investing in startups, buying high or low
(10:41) Fundamentals – PE, PB, PS
(12:04) Fifth argument – S&P 500 and BRK’s book value growth since 2008
(13:07) Deployment of excess cash
(14:27) Discussing long term returns
Enjoy the video.