Berkshire stock is better than the S&P 500 – check your portfolio holdings!
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