# Berkshire BRK.B - again



## Cal (Jun 17, 2009)

http://www.berkshirehathaway.com/letters/2011ltr.pdf

Letter to shareholders....


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## Barwelle (Feb 23, 2011)

I like his explanation on pages 6 and 7 about why he wants stocks to underperform for long periods of time.


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## Cal (Jun 17, 2009)

Not Fans:

http://www.thestar.com/business/art...t-why-the-oracle-of-omaha-is-irrelevant-olive

http://www.theglobeandmail.com/glob...hy-buffett-has-gold-all-wrong/article2351809/


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## atrp2biz (Sep 22, 2010)

The Star article is ridiculous. Sure, there are lots of stocks that have outperformed BRK, therefore conglomerates are not the way to go? 

Also, what the article fails to point out is that BRK did not invest in traditional equities in the financial sector. BRK managed some sweet deals from JPM and others.

All in all, it was a terrible article. I'm happy to hold BRK for the long term, especially if it retains all of its earnings and doesn't pay dividends.


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## CanadianCapitalist (Mar 31, 2009)

I think a lot of the criticism by David Olive is not valid. I might be mistaken but I've never heard Buffett saying avoid bank stocks. IIRC, Buffett did get rid of a lot of derivatives that made no sense to him. The derivatives that BRK did bet on are fairly straight forward and Buffett clearly explains why he took those bets and why the mark-to-market accounting treatment of the derivatives that BRK does own makes no sense.

Still, I do agree that investors have to think for themselves and not take Buffett's or anyone else's words as gospel. Having said that, I think Buffett is going to turn out to be right on the relative values in stocks, bonds and gold at current valuation levels.


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## Financial Cents (Jul 22, 2010)

Cal, thanks for sharing the annual letter. 

Always an entertaining read!


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## 1sImage (Jan 2, 2013)

Anyone rich enough to own some? 

Berkshire Hathaway Inc.


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## maxandrelax (Jul 11, 2012)

More like, anyone savvy enough to have invested in BRK more than 30 years ago?  I couldn't imagine making a market buy for 1 BRK share lol - finding that you paid $10,000 more than you wanted.


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## 1sImage (Jan 2, 2013)

I know, I follow it an it has massive moves in a day.


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## slacker (Mar 8, 2010)

What does A provide that B lacks?


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## GoldStone (Mar 6, 2011)

Bragging rights.


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## 1sImage (Jan 2, 2013)

He never split... you wanna play you gotta pay.


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## jcgd (Oct 30, 2011)

Similar moves as any other company. Well, less if you really think about it. How often do you see >4% swing with Berkshire over any other company? I'm not sure why Buffett created class B. The whole idea, from what I can gather, was keeping the stock tracking book value by preventing speculative buying and selling. Essentially, a massive share price kept people who weren't serious about owning the company away. Creating the B class defeats the point. He might as well have just split the class a 100 for one or whatever.

The annualized return of Berkshire kinda shoots the stock split theory doesn't it?


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## Uranium101 (Nov 18, 2011)

slacker said:


> What does A provide that B lacks?


There is huge discounts to the voting rights of class B. Of course, Buffett favours the A class.

Back in the days, before class B splits, 1 class A = 30 class B, but it doesn't mean that as long as you have 30 class B shares, your voting right is just as good as a class A.
If I remember correctly, you needed like 200 class B shares in order to be equivalent to 1 class A share.
Class A can convert to class B any time they wanted, but not the other way around.

So, if you factor in the stock split for class B. You will see that 1 class A = 1500 class B, as for voting right, it's 1 class A = 10,000 class B shares.


edit: that is why you will see class B trades with a slight discount to class A.


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## Echo (Apr 1, 2011)

Found this on Wikipedia - http://en.wikipedia.org/wiki/Berkshire_Hathaway

Berkshire Hathaway is notable in that it has never split its Class A shares, which not only contributed to their high per-share price but also significantly reduced the liquidity of the stock. 

This refusal to split the stock reflects the management's desire to attract long-term investors as opposed to short-term speculators. 

However, Berkshire Hathaway has created a Class B stock, with a per-share value originally kept (by specific management rules) close to 1⁄30 of that of the original shares (now Class A) and 1⁄200 of the per-share voting rights, and after the January 2010 split, at 1⁄1,500 the price and 1⁄10,000 the voting rights of the Class-A shares. 

Holders of class A stock are allowed to convert their stock to Class B, though not vice versa. 

Buffett was reluctant to create the class B shares, but did so to thwart the creation of unit trusts that would have marketed themselves as Berkshire look-alikes. 

As Buffett said in his 1995 shareholder letter: "The unit trusts that have recently surfaced fly in the face of these goals. They would be sold by brokers working for big commissions, would impose other burdensome costs on their shareholders, and would be marketed en masse to unsophisticated buyers, apt to be seduced by our past record and beguiled by the publicity Berkshire and I have received in recent years. The sure outcome: a multitude of investors destined to be disappointed."


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## underemployedactor (Oct 22, 2011)

Yes, I own 1000 shares of BRK. Oh wait, you didn't mean the Brick, did you.....:tongue-new:


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## james4beach (Nov 15, 2012)

Yeah he defeated many purposes with the B shares. He said he wouldn't split, but he eventually split the B shares. This also let them be included into the S&P 500 for the first time. To me it looks like Buffett compromised some of his long-held beliefs: he split in order to finance a typical Wall Street stock-payment deal *and* get the short-term pump offered by index addition.

I do hold BRK.B. It's performed at +0.9% annualized over the years I've held it, meaning it has underperformed my cash. Not a big surprise... most stocks have underperformed cash over the last few years. I still can't figure out why people love stocks so much.


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## Sampson (Apr 3, 2009)

james4beach said:


> I do hold BRK.B. It's performed at +0.9% annualized over the years I've held it, meaning it has underperformed my cash. Not a big surprise... most stocks have underperformed cash over the last few years. I still can't figure out why people love stocks so much.


You're kidding right? Which stocks have return annualized 0.9% over a few years? Most indicies are above their 2008 levels, so unless you bought at the last market top, any money investing over the past 5 years would have returned much more than cash over that period.


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## james4beach (Nov 15, 2012)

I guess I was thinking of the TSX (admittedly the wrong benchmark for Berkshire). Let me actually calculate to get a fair picture of the last few years... I'm curious now. For my 'cash' proxy I'll use XSB, reasonable considering it's similar to a cash/GIC mix.

These numbers are non-annualized, TSX Composite versus XSB

1 year: +2.2% vs XSB +2.0% [tie]
2 years: -3.5% vs XSB +6.7% [CASH wins]
3 years: +12.8% vs XSB +8.5% [STOCKS win]
4 years: +48.3% vs XSB +14.1% [STOCKS win]
5 years: +1.1% vs XSB +22.2% [CASH wins]
6 years: -0.9% vs XSB +28.1% [CASH wins]
7 years: +9.0% vs XSB +32.5% [CASH wins]
8 years: +40.8% vs XSB +36.5% [tie, difference is 0.5% annualized]
9 years: +48.7% vs XSB +43.2% [tie, difference is 0.6% annualized]
10 years: +89.9% vs XSB +53.5% [STOCKS win]

In the 10 periods looking back from today, the TSX beats 'cash' in only 3 ! That's a pretty terrible track record. It's like you have a 30% chance of succeeding in stocks, if you arbitrarily pick an entry year.
In the last 5 periods (what you suggested), TSX beats in 2 ... better track record, but hardly impressive.


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## Sampson (Apr 3, 2009)

In what way is XSB similar to cash? No institution will give yields on cash that are close to the debt they own. They wouldn't make money that way.

One question, what happens to your comparison if you extend the time frame beyond 10 years? 20, 30 years? It's widely acknowledged (and 2009 reinforced this) that periods of 10 years have shown that equities may not necessarily outperform. Beyond this time frame, pick any rolling 20 year period. This is why people invest in equities.

Will equities produce similar returns going forward? No one knows, but unless you believe there will be no real organic growth in the World economy, then equities should continue to outperform cash over long periods. Selecting a single country's cap-weighted index is not a good proxy for equity investing as a whole. What happens compare your equities vs. cash portfolio if you now add the S&P500, emerging markets, EAFE etc into the mix. This would have outperformed cash.


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## Cal (Jun 17, 2009)

http://www.berkshirehathaway.com/letters/2011ltr.pdf

Letter to shareholders....


----------



## Barwelle (Feb 23, 2011)

I like his explanation on pages 6 and 7 about why he wants stocks to underperform for long periods of time.


----------



## Cal (Jun 17, 2009)

Not Fans:

http://www.thestar.com/business/art...t-why-the-oracle-of-omaha-is-irrelevant-olive

http://www.theglobeandmail.com/glob...hy-buffett-has-gold-all-wrong/article2351809/


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## atrp2biz (Sep 22, 2010)

The Star article is ridiculous. Sure, there are lots of stocks that have outperformed BRK, therefore conglomerates are not the way to go? 

Also, what the article fails to point out is that BRK did not invest in traditional equities in the financial sector. BRK managed some sweet deals from JPM and others.

All in all, it was a terrible article. I'm happy to hold BRK for the long term, especially if it retains all of its earnings and doesn't pay dividends.


----------



## CanadianCapitalist (Mar 31, 2009)

I think a lot of the criticism by David Olive is not valid. I might be mistaken but I've never heard Buffett saying avoid bank stocks. IIRC, Buffett did get rid of a lot of derivatives that made no sense to him. The derivatives that BRK did bet on are fairly straight forward and Buffett clearly explains why he took those bets and why the mark-to-market accounting treatment of the derivatives that BRK does own makes no sense.

Still, I do agree that investors have to think for themselves and not take Buffett's or anyone else's words as gospel. Having said that, I think Buffett is going to turn out to be right on the relative values in stocks, bonds and gold at current valuation levels.


----------



## Financial Cents (Jul 22, 2010)

Cal, thanks for sharing the annual letter. 

Always an entertaining read!


----------



## 1sImage (Jan 2, 2013)

Anyone rich enough to own some? 

Berkshire Hathaway Inc.


----------



## maxandrelax (Jul 11, 2012)

More like, anyone savvy enough to have invested in BRK more than 30 years ago?  I couldn't imagine making a market buy for 1 BRK share lol - finding that you paid $10,000 more than you wanted.


----------



## 1sImage (Jan 2, 2013)

I know, I follow it an it has massive moves in a day.


----------



## slacker (Mar 8, 2010)

What does A provide that B lacks?


----------



## GoldStone (Mar 6, 2011)

Bragging rights.


----------



## 1sImage (Jan 2, 2013)

He never split... you wanna play you gotta pay.


----------



## jcgd (Oct 30, 2011)

Similar moves as any other company. Well, less if you really think about it. How often do you see >4% swing with Berkshire over any other company? I'm not sure why Buffett created class B. The whole idea, from what I can gather, was keeping the stock tracking book value by preventing speculative buying and selling. Essentially, a massive share price kept people who weren't serious about owning the company away. Creating the B class defeats the point. He might as well have just split the class a 100 for one or whatever.

The annualized return of Berkshire kinda shoots the stock split theory doesn't it?


----------



## Uranium101 (Nov 18, 2011)

slacker said:


> What does A provide that B lacks?


There is huge discounts to the voting rights of class B. Of course, Buffett favours the A class.

Back in the days, before class B splits, 1 class A = 30 class B, but it doesn't mean that as long as you have 30 class B shares, your voting right is just as good as a class A.
If I remember correctly, you needed like 200 class B shares in order to be equivalent to 1 class A share.
Class A can convert to class B any time they wanted, but not the other way around.

So, if you factor in the stock split for class B. You will see that 1 class A = 1500 class B, as for voting right, it's 1 class A = 10,000 class B shares.


edit: that is why you will see class B trades with a slight discount to class A.


----------



## Echo (Apr 1, 2011)

Found this on Wikipedia - http://en.wikipedia.org/wiki/Berkshire_Hathaway

Berkshire Hathaway is notable in that it has never split its Class A shares, which not only contributed to their high per-share price but also significantly reduced the liquidity of the stock. 

This refusal to split the stock reflects the management's desire to attract long-term investors as opposed to short-term speculators. 

However, Berkshire Hathaway has created a Class B stock, with a per-share value originally kept (by specific management rules) close to 1⁄30 of that of the original shares (now Class A) and 1⁄200 of the per-share voting rights, and after the January 2010 split, at 1⁄1,500 the price and 1⁄10,000 the voting rights of the Class-A shares. 

Holders of class A stock are allowed to convert their stock to Class B, though not vice versa. 

Buffett was reluctant to create the class B shares, but did so to thwart the creation of unit trusts that would have marketed themselves as Berkshire look-alikes. 

As Buffett said in his 1995 shareholder letter: "The unit trusts that have recently surfaced fly in the face of these goals. They would be sold by brokers working for big commissions, would impose other burdensome costs on their shareholders, and would be marketed en masse to unsophisticated buyers, apt to be seduced by our past record and beguiled by the publicity Berkshire and I have received in recent years. The sure outcome: a multitude of investors destined to be disappointed."


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## underemployedactor (Oct 22, 2011)

Yes, I own 1000 shares of BRK. Oh wait, you didn't mean the Brick, did you.....:tongue-new:


----------



## james4beach (Nov 15, 2012)

Yeah he defeated many purposes with the B shares. He said he wouldn't split, but he eventually split the B shares. This also let them be included into the S&P 500 for the first time. To me it looks like Buffett compromised some of his long-held beliefs: he split in order to finance a typical Wall Street stock-payment deal *and* get the short-term pump offered by index addition.

I do hold BRK.B. It's performed at +0.9% annualized over the years I've held it, meaning it has underperformed my cash. Not a big surprise... most stocks have underperformed cash over the last few years. I still can't figure out why people love stocks so much.


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## Sampson (Apr 3, 2009)

james4beach said:


> I do hold BRK.B. It's performed at +0.9% annualized over the years I've held it, meaning it has underperformed my cash. Not a big surprise... most stocks have underperformed cash over the last few years. I still can't figure out why people love stocks so much.


You're kidding right? Which stocks have return annualized 0.9% over a few years? Most indicies are above their 2008 levels, so unless you bought at the last market top, any money investing over the past 5 years would have returned much more than cash over that period.


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## james4beach (Nov 15, 2012)

I guess I was thinking of the TSX (admittedly the wrong benchmark for Berkshire). Let me actually calculate to get a fair picture of the last few years... I'm curious now. For my 'cash' proxy I'll use XSB, reasonable considering it's similar to a cash/GIC mix.

These numbers are non-annualized, TSX Composite versus XSB

1 year: +2.2% vs XSB +2.0% [tie]
2 years: -3.5% vs XSB +6.7% [CASH wins]
3 years: +12.8% vs XSB +8.5% [STOCKS win]
4 years: +48.3% vs XSB +14.1% [STOCKS win]
5 years: +1.1% vs XSB +22.2% [CASH wins]
6 years: -0.9% vs XSB +28.1% [CASH wins]
7 years: +9.0% vs XSB +32.5% [CASH wins]
8 years: +40.8% vs XSB +36.5% [tie, difference is 0.5% annualized]
9 years: +48.7% vs XSB +43.2% [tie, difference is 0.6% annualized]
10 years: +89.9% vs XSB +53.5% [STOCKS win]

In the 10 periods looking back from today, the TSX beats 'cash' in only 3 ! That's a pretty terrible track record. It's like you have a 30% chance of succeeding in stocks, if you arbitrarily pick an entry year.
In the last 5 periods (what you suggested), TSX beats in 2 ... better track record, but hardly impressive.


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## Sampson (Apr 3, 2009)

In what way is XSB similar to cash? No institution will give yields on cash that are close to the debt they own. They wouldn't make money that way.

One question, what happens to your comparison if you extend the time frame beyond 10 years? 20, 30 years? It's widely acknowledged (and 2009 reinforced this) that periods of 10 years have shown that equities may not necessarily outperform. Beyond this time frame, pick any rolling 20 year period. This is why people invest in equities.

Will equities produce similar returns going forward? No one knows, but unless you believe there will be no real organic growth in the World economy, then equities should continue to outperform cash over long periods. Selecting a single country's cap-weighted index is not a good proxy for equity investing as a whole. What happens compare your equities vs. cash portfolio if you now add the S&P500, emerging markets, EAFE etc into the mix. This would have outperformed cash.


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