Deep Value Investing
Value Investor, Long-Term Compounding
Berkshire Hathaway should retake the lead once the cycle turns from AI back to value; there will never be a better investor than Warren Buffett. AI is at its peak and value is lagging, but the cycle should change within 5-10 years. Excluding the last five years, when AI bloated the S&P, Berkshire outperformed by more than 50% a year. @themomentumplay counters that $1,000 a month since 2006 compounded at 13.5% in SPY versus 11.8% in Berkshire, but picking time frames skews the data. x.com x.com x.com x.comÂ
Berkshire Hathaway benefits from a flight to low-beta quality stocks that are not burdening themselves with AI debt. Its shares are up 10% in October, while three of its largest holdings, Apple, Coca-Cola and Chevron, have been surging. Boring pays. x.comÂ
Berkshire Hathaway is an attractive hedge against speculative holdings because its fortress balance sheet gives it optionality either way. If markets do well, it cruises with existing assets and collects yield on its cash. If markets drop, it can buy the dip like no other. x.com x.com x.com x.comÂ
Berkshire Hathaway offers no edge over simply owning the S&P 500. Its supposed defensiveness does not hold up, since both fell over 50% in the financial crisis and over 30% in 2020. Investors worried about a recession can keep some cash themselves rather than rely on Berkshire's cash pile. x.com x.comÂ
Berkshire Hathaway is built for long-term survival rather than maximum returns, earning a Risk Shield rating of 95/100 that puts it in the top 5% of stocks globally. Growth is average and quality only slightly above average, but the balance sheet holds a record $397 billion of cash, 31% of total assets, with negative net debt, low beta and low volatility. x.comÂ
Berkshire Hathaway is a hedge against the market in current conditions, not a vehicle to beat it, which explains its nearly $400B in cash and treasuries. x.comÂ
Berkshire Hathaway's recent bets show impressive mental dexterity, but they are still small dollars for a company its size. It bought Alphabet above its long-term average multiple, at more than twice its price of a year earlier, perhaps the highest multiple Berkshire has paid for an investment that size, apparently betting on good returns from roughly $200B of growing AI capex. It also bought Delta despite Buffett calling airlines a mistake after COVID. x.com x.comÂ
Strong corporate profit margins may make the S&P 500 better value than traditional P/E ratios suggest, despite elevated stock prices. Per Bloomberg, its P/E-to-profitability ratio is at its lowest in nearly 14 years, last seen around 2012. Wall Street might be overlooking something important. x.comÂ
The S&P 500's elevated P/E masks concentration in just a few stocks, making index exposure less appealing than selective stock picking for risk and reward. Its P/E is well above the ten-year median; digging into individual constituents looks more sensible than buying all 500. x.comÂ
Berkshire Hathaway risks another five years of returns decimated by big tech, which is too strong. Greg Abel should study Jensen Huang every day, or it will come at great cost to shareholders. Berkshire is more than an insurance company now, and missing Google and Amazon, which it has acknowledged as mistakes, was bad in the long run, not just the short run. x.com x.com x.comÂ
Berkshire Hathaway is effectively a lower-beta version of the S&P 500 unless Greg Abel reinvents the wheel, and that makes it a better buy than the index during selloffs like this one. Its 20-year total return exactly matched the S&P 500's at 694.6%, with milder drawdowns but milder upside in tech-led rallies. Much of its roughly $400B cash pile is insurance float, so less is available for buying stocks, and outside tech nothing big enough is both deep value and growth to be the next Apple. … Show more