No. of Recommendations: 5
I don't understand why he has no appetite to invest in index funds, if he thinks Berkshire is great because it is a mini index. That is inconsistent.
Other than that, he hit the nail on the head. You can sell an slightly overvalued stock, but what next? It does seem rather bizarre that a gentleman that spends so much time writing about investments can't even be bothered to look beyond the S&P 500. Low-cost indices based on market cap size, geography, and sector are plentiful. Jim's had a few popular posts on here on the merits of QQQE, for example.
I know a handful of companies very well, but none of them appear to offer better return prospects than Berkshire offers, even at a rich valuation. In fact, most are clearly inferior. I could choose to invest in an index fund, but the overall market is hardly a bargain. At current levels, the market seems to be even more expensive than when I wrote an article on the subject early this year. In addition, at Berkshire we have management that is totally aligned with shareholders, without outrageous compensation plans, compensation consultants, and the like. US small and midcap indexes, for example, are trading a tad
below their average PE ratios of the past 25 years. I recently added iShares Core S&P Small-Cap ETF (IJR) at approx 16x earnings. Small and midcap stocks have grown EPS at approx. 8% annualized for the past 25 years.
yardeni.com - Largecaps vs smidcapsishares.com - Ishares core sp smallcap ETFMr. Munger's advice to "hold the damn stock" was directed at his heirs who presumably are not passionate investors but rather ordinary folks who don't get excited by reading 10-Ks all day. This would likely NOT be the same advice he'd give to "enterprising investors" who enjoy spending large proportions of their time thinking about investments. (or [until recently] selling paid subscriptions for investing-related content!)
I think the lesson here is simple: RW was rather foolish for selling BRK shares without having another destination for that capital in mind. Opportunity cost 101.
