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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 4
Rational Reflections: Different Types of Mistakes
Overpaying for an investment is undesirable but time can heal many wounds
"Jane's Story
Let's revisit the fictional story of Jane, a 45 year old who received an unexpected inheritance of $750,000 in the fall of 2001. I wrote about Jane eleven years ago when I put together an assessment of Berkshire Hathaway's performance for the ten year period spanning 2002 to 2011. Here was my description of Jane's financial position at the time she received her windfall:"
tps://rationalreflections.substack.com/p/different-types-of-mistakes?utm_source=substack&utm_medium=email
No. of Recommendations: 1
No. of Recommendations: 12
A good pithy summary:
"Overpaying for a business that is certain to exist and earn substantially more a decade from now will dampen results but is not likely to be catastrophic."
FWIW, I bought my first shares at P/B 1.768 in early September 2001. Not as unlucky as Jane, but not neither was it a very auspicious day to buy.
The multiple has been that high less than 8% of the time since then.
Average P/B last five years 1.333 (using peak-to-date book each day since I had it handy)
My one-time "loss" due to overpaying -24.6% on that metric.
But not a loss in any other sense, as the first price was $68413 and the current price is somewhat higher.
Jim
No. of Recommendations: 14
"Overpaying for a business that is certain to exist and earn substantially more a decade from now will dampen results but is not likely to be catastrophic."Am reminded of what Charlie said at DJCO meeting last year when asked about Costco. Costco shares closed on the day of that meeting (Feb 16, 2022) at $512/share. Shares trading at similar level today.
"Becky Quick: Charlie, another question came in about Costco. You recently talked about bubbles and high valuations in your home conference talk. Is Costco a part of that? Costco has never traded at a higher price to sales or price to earnings multiple. How should new investors think about Costco given its record run?
Charlie Munger: Well, that's a very good question, and I've always believed that nothing was worth an infinite price. So at some, even an admirable place like Costco could get to a price where you would say that's too high. But I would argue that if I were investing money for some sovereign wealth fund or some pension fund on a 30, 40, 50-year time horizon. I would buy Costco at the current price. I think it's that strong and enterprise and that admirable place. Now I'm not saying I would. I can't bring myself with my habits to pay these big prices, but I never even think about selling a share of Costco just because it's selling at a high price. So. If you stop to think about it, I bought at Christmas time, a flannel shirt, a bunch of flannel shirts at Costco. They cost seven dollars each more or less. And it was a soft flannel, and it was better and so forth. And then I bought pants, I think they were Orvis pants, and I pay like seven dollars, and they stretch around my waist and they're partly water resistant and what have you. Costco is going to be an absolute titan on the internet because it got curated products that everybody trusts and huge purchasing power on a limited number of stocking units. So, I'm not saying I'm buying Costco at this price, but I'm certainly not selling any. I think it's going to be a big, powerful company as far ahead as you can see. And I think it deserves its success. I think it has a good culture and a good moral ethos. I wish everything else in America is working as well as Costco does. Think what a blessing that would be for us all."https://latticeworkinvesting.com/2022/06/03/charli...
No. of Recommendations: 2
Btw, I sorta like the rare occasion when Warren and Charlie may see things slightly differently, like WFC and COST. I know WFC was sold for a combination of reasons. There seems to be a good argument either way to hold or to sell at the time, but the BRK decision to sell COST did surprise me in 2020. I suppose their thinking on China risk and Alibaba is different as well.
