The Lemon Fool

Several people have mentioned BRK.B in passing in their posts on this board, so I thought I'd start a new thread.

I'm considering adding BRK.B to a portfolio as a safety feature.
Here's my thinking. Feel free to comment.

1) In the event of a serious / sustained market fall, the massive amounts of cash they have will be deployed to pick up other companies on the cheap. This is what happened in 2008, and there's no reason why it wouldn't happen again.
2) BH's holdings, with a variety of 'moaty' companies, both fully-owned or with major holdings, make it a robust conglomerate. The insurance - and to some extent reinsurance - companies throw off cash, similar in my mind to how Law Deb's professional services add to their earnings.

The bear case points, and how I'm discounting them, are:
1) Succession - but hey, they've covered it as best they can
2) Poor performance compared to S&P500 - I'm not looking to beat the S&P with this. It's my 'alternative' to bonds or gold, so any growth is good.
3) Recent poor investment choices - See my previous point. I'm sure they have a number of companies they like that are currently just too expensive, that won't be in the event of a major downturn. And this is why I'm thinking of buying it, so that it will take advantage in order to outperform when the rest of the portfolio is in free-fall.
4) It's expensive / I'm buying at the top - yep... no getting away from that.

In case people want the wider context:
This is one of 4 portfolios I run, and it's the only one that's not in the UK. I'm adding monthly amounts to it. It's only ETFs (Developed world, Small cap, emerging markets, REITS) and although I have access to US shares and ADRs, I'm not interested in going down the single company route with this portfolio.

torata

Just looking at the BRK constituents, I see that Apple is 42% of its value!

https://www.dataroma.com/m/holdings.php?m=BRK

torata wrote:Several people have mentioned BRK.B in passing in their posts on this board, so I thought I'd start a new thread.

I'm considering adding BRK.B to a portfolio as a safety feature.
Here's my thinking. Feel free to comment.

1) In the event of a serious / sustained market fall, the massive amounts of cash they have will be deployed to pick up other companies on the cheap. This is what happened in 2008, and there's no reason why it wouldn't happen again.
2) BH's holdings, with a variety of 'moaty' companies, both fully-owned or with major holdings, make it a robust conglomerate. The insurance - and to some extent reinsurance - companies throw off cash, similar in my mind to how Law Deb's professional services add to their earnings.

The bear case points, and how I'm discounting them, are:
1) Succession - but hey, they've covered it as best they can
2) Poor performance compared to S&P500 - I'm not looking to beat the S&P with this. It's my 'alternative' to bonds or gold, so any growth is good.
3) Recent poor investment choices - See my previous point. I'm sure they have a number of companies they like that are currently just too expensive, that won't be in the event of a major downturn. And this is why I'm thinking of buying it, so that it will take advantage in order to outperform when the rest of the portfolio is in free-fall.
4) It's expensive / I'm buying at the top - yep... no getting away from that.

In case people want the wider context:
This is one of 4 portfolios I run, and it's the only one that's not in the UK. I'm adding monthly amounts to it. It's only ETFs (Developed world, Small cap, emerging markets, REITS) and although I have access to US shares and ADRs, I'm not interested in going down the single company route with this portfolio.

torata

I'll wait for those more qualified than me to offer up their ideas, but I have to admit that I've had similar thoughts to you for the past few years. The fact that there is no dividend may tick some boxes for people who are keeping a close eye on portfolio structure and dividend taxes vs CGT. The recent increase in share price is not nice, but could it be already pricing in the effects of inflation and compounding?

I would personally not think of it as a 'safety feature' so much as further diversification, which I guess is a sort of safety feature anyway. Long gone are the days of discovering TMF in 1999 and the ideas of sticking all my wordly goods into Lloyds and Rentokil.

Steve

MrFoolish wrote:Just looking at the BRK constituents, I see that Apple is 42% of its value!

https://www.dataroma.com/m/holdings.php?m=BRK

This list only shows BRK's holdings in listed entities.

It excludes significant wholly-owned interests in insurance, energy , rail, etc. And its significant cash pile is missing too.

A quick Google suggests Apple is approx 25% of BRKs total value.

Greg

vandefrosty wrote:

MrFoolish wrote:Just looking at the BRK constituents, I see that Apple is 42% of its value!

https://www.dataroma.com/m/holdings.php?m=BRK

This list only shows BRK's holdings in listed entities.

It excludes significant wholly-owned interests in insurance, energy , rail, etc. And its significant cash pile is missing too.

A quick Google suggests Apple is approx 25% of BRKs total value.

Greg

Useful information.

Still, you'd have to be fairly bullish on Apple to make a major stake in BRK, IMO.

vandefrosty wrote:

MrFoolish wrote:Just looking at the BRK constituents, I see that Apple is 42% of its value!

https://www.dataroma.com/m/holdings.php?m=BRK

This list only shows BRK's holdings in listed entities.

It excludes significant wholly-owned interests in insurance, energy , rail, etc. And its significant cash pile is missing too.

A quick Google suggests Apple is approx 25% of BRKs total value.

Greg

Or was 3 1/2 months ago.

Dod

Another of BRK's benefits, not so much in a low interest rate era, is the vast pool of insurance float 'free' money. Insurance payments received in lieu of claims later being paid out 'free money'. If/when interest rates are 5%+ that's a considerable benefit.

BUT it is still a single stock risk factor, even if it is more Investment Trust like (conglomerate of many both public and private investments). Previously I've been heavy into BRK, have sold all my A's now and only hold B's and am glad to be rid of the single stock risk (sleep-not-so-well niggle).

Another niggle is that of US $60K/whatever Estate Tax (death duties/inheritance tax) rule. More than that of US assets and upon your death (as a Non resident alien) you (or rather heirs/agents) have to file with the US to get the assets released and that can take 2+ years. Not even joint accounts can get around that. US/UK tax treaty does have UK individuals having the same as US individuals $11M (whatever, can't recall offhand) allowance before any US estate tax falls due. BUT you have to file with the US, using the correct versions of forms (use a form that was different to the one required at the time of death, and the request can be dropped) i.e. does need careful handling to file in the correct manner within the correct time etc. One of the reasons why many prefer to hold US stock exposure via a Irish ETF, as that 'never dies' and side steps such Estate Tax risks.

I'm not sure how one might now go about obtaining the actual share certificates. Moved over to a crest like setup where US investors can go through that, but where UK crest doesn't extend to encompassing that AFAIK. So nominee/broker type counter party risks involved. Some brokers actually lend out shares to hedge funds to help bolster their earnings/profits, which involves even more counter party risks.

I last topped up on some B's back in March 2020 when price/book was down at 1.0 or below and I suspected that Buffett might start repurchasing shares. More recently P/BV is up more at around 1.5 levels. Perhaps reasonably reflective that as interest rates rise BRK is well placed to deploy some of its large cash reserves along with benefiting by increased benefits from 'free money'.

1nvest wrote:Another of BRK's benefits, not so much in a low interest rate era, is the vast pool of insurance float 'free' money. Insurance payments received in lieu of claims later being paid out 'free money'. If/when interest rates are 5%+ that's a considerable benefit.

BUT it is still a single stock risk factor, even if it is more Investment Trust like (conglomerate of many both public and private investments). Previously I've been heavy into BRK, have sold all my A's now and only hold B's and am glad to be rid of the single stock risk (sleep-not-so-well niggle).

Another niggle is that of US $60K/whatever Estate Tax (death duties/inheritance tax) rule. More than that of US assets and upon your death (as a Non resident alien) you (or rather heirs/agents) have to file with the US to get the assets released and that can take 2+ years. Not even joint accounts can get around that. US/UK tax treaty does have UK individuals having the same as US individuals $11M (whatever, can't recall offhand) allowance before any US estate tax falls due. BUT you have to file with the US, using the correct versions of forms (use a form that was different to the one required at the time of death, and the request can be dropped) i.e. does need careful handling to file in the correct manner within the correct time etc. One of the reasons why many prefer to hold US stock exposure via a Irish ETF, as that 'never dies' and side steps such Estate Tax risks.

I'm not sure how one might now go about obtaining the actual share certificates. Moved over to a crest like setup where US investors can go through that, but where UK crest doesn't extend to encompassing that AFAIK. So nominee/broker type counter party risks involved. Some brokers actually lend out shares to hedge funds to help bolster their earnings/profits, which involves even more counter party risks.

I last topped up on some B's back in March 2020 when price/book was down at 1.0 or below and I suspected that Buffett might start repurchasing shares. More recently P/BV is up more at around 1.5 levels. Perhaps reasonably reflective that as interest rates rise BRK is well placed to deploy some of its large cash reserves along with benefiting by increased benefits from 'free money'.

Very interesting about the estate tax issue, I was amused by the single stock worry with Berkshire Hathaway A shares, given a single share is now nearly ½ m $ literally a single share could be a chunky part of most portfolios…..

Hariseldon58 wrote:

1nvest wrote:Another of BRK's benefits, not so much in a low interest rate era, is the vast pool of insurance float 'free' money. Insurance payments received in lieu of claims later being paid out 'free money'. If/when interest rates are 5%+ that's a considerable benefit.

BUT it is still a single stock risk factor, even if it is more Investment Trust like (conglomerate of many both public and private investments). Previously I've been heavy into BRK, have sold all my A's now and only hold B's and am glad to be rid of the single stock risk (sleep-not-so-well niggle).

Another niggle is that of US $60K/whatever Estate Tax (death duties/inheritance tax) rule. More than that of US assets and upon your death (as a Non resident alien) you (or rather heirs/agents) have to file with the US to get the assets released and that can take 2+ years. Not even joint accounts can get around that. US/UK tax treaty does have UK individuals having the same as US individuals $11M (whatever, can't recall offhand) allowance before any US estate tax falls due. BUT you have to file with the US, using the correct versions of forms (use a form that was different to the one required at the time of death, and the request can be dropped) i.e. does need careful handling to file in the correct manner within the correct time etc. One of the reasons why many prefer to hold US stock exposure via a Irish ETF, as that 'never dies' and side steps such Estate Tax risks.

I'm not sure how one might now go about obtaining the actual share certificates. Moved over to a crest like setup where US investors can go through that, but where UK crest doesn't extend to encompassing that AFAIK. So nominee/broker type counter party risks involved. Some brokers actually lend out shares to hedge funds to help bolster their earnings/profits, which involves even more counter party risks.

I last topped up on some B's back in March 2020 when price/book was down at 1.0 or below and I suspected that Buffett might start repurchasing shares. More recently P/BV is up more at around 1.5 levels. Perhaps reasonably reflective that as interest rates rise BRK is well placed to deploy some of its large cash reserves along with benefiting by increased benefits from 'free money'.

Very interesting about the estate tax issue, I was amused by the single stock worry with Berkshire Hathaway A shares, given a single share is now nearly ½ m $ literally a single share could be a chunky part of most portfolios…..

Most US brokerages allow customers to buy fractional shares, so the high nominal share price of BRK-A (and a few others like Tesla) isn't a problem any more. Even BRK's B shares are now over $300 each.

Where it is still a problem is if you want to use options as the standard contract size is 100 shares. That is why I hold exactly 100 shares of BRK-B.

Lootman wrote:Most US brokerages allow customers to buy fractional shares, so the high nominal share price of BRK-A (and a few others like Tesla

Where it is still a problem is if you want to use options as the standard contract size is 100 shares. That is why I hold exactly 100 shares of BRK-B.

Thank you, knowing of the existence of the B shares being 1/1500 of the A shares I hadn't considered fractions of the A shares.

Lootman wrote:Most US brokerages allow customers to buy fractional shares, so the high nominal share price of BRK-A (and a few others like Tesla) isn't a problem any more. Even BRK's B shares are now over $300 each.

Where it is still a problem is if you want to use options as the standard contract size is 100 shares. That is why I hold exactly 100 shares of BRK-B.

I see freetrade cater for fractional shares https://freetrade.io/fractional-shares When I searched for Berkshire Hathaway it listed the B series

1nvest wrote:

Lootman wrote:Most US brokerages allow customers to buy fractional shares, so the high nominal share price of BRK-A (and a few others like Tesla) isn't a problem any more. Even BRK's B shares are now over $300 each.

Where it is still a problem is if you want to use options as the standard contract size is 100 shares. That is why I hold exactly 100 shares of BRK-B.

I see freetrade cater for fractional shares https://freetrade.io/fractional-shares When I searched for Berkshire Hathaway it listed the B series

There are only 619,940 A shares outstanding, and 1.3 billion B shares outstanding. So it is probably not worth a UK broker listing the A shares. The liquidity and demand is not there to make doing fractional shares for the A shares realistic, because the broker would have to buy the A shares for inventory.

The voting rights on both are the same as far as I know, unlike other companies that have both A and B shares, like Google/Alphabet.

BRK.B dropped 45% in value in 2008. The pandemic dropped it 20%. In both cases an intermediate term bond fund rose in value.
It's certainly not the 'bond fund' you'd want if you wanted stability.

A single class B share represents 1/1500 of the ownership of a class A shares. This does not apply to voting rights. A single class B share has 1/10,000 of the voting rights of a class A share

Interesting thread.

Found it whilst searching Berkshire as I was contemplating adding a 3-4% holding.

I have most of my money right now in CGT or Ruffer and about 22% cash and a 3-4% holding in VWRL.

The Apple stake doesn't concern me as I don't have any exposure to it outside that tiny amount in VWRL.

I was reading this but cautious it can easily be confirmation bias.

https://seekingalpha.com/article/448262 ... tress-test

I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

Both during the dotcom and GFC bear markets BRK suffered peak to trough drawdowns that were comparable to the wider market. Everything gets hit during a bear market, even the good companies.

That said, if we get a firesale, I would trust the management to deploy their $100bn cashpile as prudently as ever and make some astute purchases that would contribute to future performance.

The stock is also trading at quite a high premium to NAV, which has grown over the last 18 months, so Berkshire is relatively expensive right now.

vand wrote:I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

Both during the dotcom and GFC bear markets BRK suffered peak to trough drawdowns that were comparable to the wider market. Everything gets hit during a bear market, even the good companies.

That said, if we get a firesale, I would trust the management to deploy their $100bn cashpile as prudently as ever and make some astute purchases that would contribute to future performance.

The stock is also trading at quite a high premium to NAV, which has grown over the last 18 months, so Berkshire is relatively expensive right now.

Yes, for me, that that sentence I bolded is the key reason why I'm interested in it. I would hope they would make use of that cash pile like they did in 2008.
My understanding is the 47% in Apple is the % in the listed entities it has invested in, not a % of the whole conglomerate, as others have mentioned.
I honestly don't know if it is expensive or not but they've been big and consistent buyer of their own shares in the last year, so maybe they don't consider themselves expensive!
Seriously conflicted whether to wait or drip feed...
torata

vand wrote:I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

I do not know what is meant by '47% in Apple'. I doubt very much that 47% of BK's assets are in Apple nor does it own 47% of Apple shares. I do not follow BK all that closely for all sorts of reasons but I do read the literature.

Dod

Dod101 wrote:

vand wrote:I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

I do not know what is meant by '47% in Apple'. I doubt very much that 47% of BK's assets are in Apple nor does it own 47% of Apple shares. I do not follow BK all that closely for all sorts of reasons but I do read the literature.

Dod

Well it seems like he explained pretty clearly, 47.6% of the BH funds invested in equities are in Apple, see post 2. If that is indeed the case, I wouldn't go near that with a barge pole.

For all the attention that Berkshire's publicly quoted shareholdings get, the portfolio is worth quite a bit less than its subsidiaries.

Broad brush figures: Current market capitalisation is a bit more than $700 billion. After the falls in 2022 the portfolio is probably worth a bit more than $300 billion. So that's $400 billion for the subsidiaries.

Berkshire owns the BNSF railroad. It's probably worth roughly the same as Berkshire's Apple shares. BNSF is a very similar business to Union Pacific, both in operations and size, and UP is valued at almost $160 billion).

Berkshire has at least seven more subsidiaries that would be in the S&P500 if they were independent.

Using NAV aka book value to value Berkshire is increasingly flawed because doing so seriously undervalues the subsidiaries. It's getting a bit like saying that Unilever is expensive because it trades at almost 7 x NAV.