No. of Recommendations: 3
Rational's conclusion (from 3 years ago):
Conclusion
Warren Buffett has long recommended low-cost index funds as the ideal investment for individuals and has gone as far as to instruct the executor of his estate to invest the majority of his wife’s portfolio in the S&P 500. While I attribute part of Mr. Buffett’s stance on indexing to modesty and not wanting to appear self-promotional, there is no doubt that the S&P 500 has been a tough competitor for Berkshire in recent years.
Berkshire has still performed competitively, and one can argue that Berkshire is undervalued today while the S&P 500 is overvalued. I tend to agree with that line of thinking and am fine with Berkshire retaining cash, which it has done, in addition to repurchasing shares below intrinsic value. I would be far less happy with return of capital in the form of dividends since I hold the majority of my Berkshire stock in taxable accounts. I am sure that my distaste for dividends pales in comparison to how Warren Buffett and Charlie Munger feel about the topic give the size of their holdings.
A good question for next year’s annual meeting could be about how the retained earnings test should read today given that the reference to book value in the revised test no longer applies due to Berkshire dropping book value as a key metric. As far as I know, the retained earnings test has not been formally revised since 2010.
This also raises the question of whether there should be a specific mathematical test because such a test could tie the hands of Greg Abel and his successors in the future. Berkshire ultimately relies on what Charlie Munger has called a “seamless web of deserved trust”, not mathematical formulas, when it comes to stewardship. Assuming Berkshire’s culture remains intact, this will be as true in the future as it is today.
I wholeheartedly agree.
Are they buying back in volume? I wonder...
