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I always wondered, couldn't you just buy a berkshire stock and chill? I mean I get that it's pretty easy in hindsight to identify that berkshire was a success a

I always wondered, couldn't you just buy a berkshire stock and chill? I mean I get that it's pretty easy in hindsight to identify that berkshire was a success and that this isn't easy to call (and that various other funds were promising at some point until they weren't), but after so many years of good returns it looks like a safe bet. Since the 60s its total returns turned out orders of magnitude above the S&Ps. (although you could say this is mostly due to the 80s, berkshire vs S&P returns have been much closer the past decade, but berkshire still did better consistently) Another question I have is, do people expect the price to drop when Buffet ends his work at berkshire for whatever reason? (whether by choice or circumstance)

ISL 11y ago
Yes, it is certainly possible to buy Berkshire and chill. Past performance may not tell you anything about the future; if you're going to buy any company, even Berkshire, do it because you like the business and the price, not because you like the record. In general, it's expected that Berkshire's rate of growth will approach that of the market simply because it's so big. A correct prediction of any Berkshire price movement is worth billions of dollars. I don't know what's going to happen when Buffett turns over the reins. You can make arguments for price movement in either direction. I'm certain that the trading volume in the days following the news will be significant.
deleted 11y ago
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brianwawok 11y ago
And just holding 1 stock increases your risk a lot. You may get better returns then the S&P 500. But you WILL have higher risk. Odds of the entire S&P 500 losing 75% of it's value is pretty low, much lower than berkshire losing 75% of it's value (feel free to replace 75% with any number and the argument stands)
- acveilleux 11y ago
  While intellectually, I know this. My latest buy of S&P 500 ETFs are 7% underwater at the moment which is annoying me. Though that's an unrealized loss and will rebound at some point in the not so distant future.
  - brianwawok 11y ago
    So the trick for these kind of stations ("Feels bad emotionally even though intellectually I know it is false"), is to come up with an intellectual solution to it. For example: Set up your retirement account to auto add X dollars per month, then have your SO change the password to the online account and not tell you the password. You can still get a yearly summary of what is going on, but there will be no emotions felt at the market losing 7% if you can't even see the balance.
Hermel 11y ago
Yes. Part of the scientific explanation of Buffets return is explained in Pedersens "betting against beta" paper. Here, it is shown that investing with cheap leverage in boring stocks (like Buffet) is better than investing in risky stocks without leverage, even when the leverage is chosen such that both strategies are equally volatile.

ISL 11y ago

Yes, it is certainly possible to buy Berkshire and chill. Past performance may not tell you anything about the future; if you're going to buy any company, even Berkshire, do it because you like the business and the price, not because you like the record. In general, it's expected that Berkshire's rate of growth will approach that of the market simply because it's so big. A correct prediction of any Berkshire price movement is worth billions of dollars. I don't know what's going to happen when Buffett turns over the reins. You can make arguments for price movement in either direction. I'm certain that the trading volume in the days following the news will be significant.

deleted 11y ago

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brianwawok 11y ago

And just holding 1 stock increases your risk a lot. You may get better returns then the S&P 500. But you WILL have higher risk. Odds of the entire S&P 500 losing 75% of it's value is pretty low, much lower than berkshire losing 75% of it's value (feel free to replace 75% with any number and the argument stands)

acveilleux 11y ago
While intellectually, I know this. My latest buy of S&P 500 ETFs are 7% underwater at the moment which is annoying me. Though that's an unrealized loss and will rebound at some point in the not so distant future.
- brianwawok 11y ago
  So the trick for these kind of stations ("Feels bad emotionally even though intellectually I know it is false"), is to come up with an intellectual solution to it. For example: Set up your retirement account to auto add X dollars per month, then have your SO change the password to the online account and not tell you the password. You can still get a yearly summary of what is going on, but there will be no emotions felt at the market losing 7% if you can't even see the balance.

Hermel 11y ago

Yes. Part of the scientific explanation of Buffets return is explained in Pedersens "betting against beta" paper. Here, it is shown that investing with cheap leverage in boring stocks (like Buffet) is better than investing in risky stocks without leverage, even when the leverage is chosen such that both strategies are equally volatile.