No. of Recommendations: 4
excellent work by Rational on the retained earnings test...
I don't find it very convincing as he himself is doing several times what he says Warren did, "moving the goalpost".
First he states Warren's criterion:
The five-year test should be: (1) during the period did our book-value gain exceed the performance of the S&P
Then Rationalwalk looks at those 5 year periods, finding this:
Berkshire began to fail the retained earnings test in 2013, and this remained the case for five years. After passing the test in 2018 and 2019, the test again failed over the past three years.......... Berkshire has had difficulty consistently passing the retained earnings test, as revised in 2010, over the past decade.
Then he looks at 10 year periods, concluding this:
The story doesn’t change very much when looking at the situation on a ten year rolling basis.
So then he looks at 22 years:
Taking an even longer view, Berkshire has outperformed the index from 2000 to 2022. A big part of that outperformance has to do with the S&P 500’s dismal performance during the first three years of the period
Having to admit that without the first 3 years even that would not have looked that great he finally turns around 180 degrees, from price performance to valuation, coming with the usual argument of all "Berkshire cult members":
one can argue that Berkshire is undervalued today while the S&P 500 is overvalued.
As much as I am a fan of Berkshire: What would good ol' Divi & Kingran say to this? Constantly moving the goalpost to "save" Berkshire, until finally a yardstick is found on which Berkshire seems(?!) to beat the S&P?
