berkshire hathaway

technologic · #1 08-18-2007, 02:16 PM

does anyone have any volatility measure of berkshire hathaway against the S&P? i feel like berkshire has less volatility agasint the s&p 500 and better returns, but am not sure how to calculate the volatility exactly.

PRE · #2 08-18-2007, 02:20 PM

Yes, it does. BRK-A has a beta of .17.

technologic · #3 08-18-2007, 02:24 PM

so if this is the case, and brk-a has historically had greater returns for a long time and is a diversified company, what's the reasoning in indexing vs. buying brk-a?

PRE · #4 08-18-2007, 03:48 PM

Beta is a measure of systematic risk (i.e. a beta of 1.5 means a stock is 50% more volatile than the overall market). The beta I listed came from Yahoo and it measures the monthly price volatility of a stock over the past 3 years compared to the S&P. Systematic risk cannot be eliminated.

Unsystematic risk, which is the individual risk of a single security (ex. panera bread affected by the price of flour), can be eliminated by indexing. The S&P has much less unsystematic risk than any individual stock, even Berkshire. This is why it would be foolish to feel a portfolio consisting of only BRK would be a much better investment that that of the S&P 500.

edtost · #5 08-18-2007, 04:09 PM

[ QUOTE ]
The S&P has much less unsystematic risk than any individual stock, even Berkshire. This is why it would be foolish to feel a portfolio consisting of only BRK would be a much better investment that that of the S&P 500.

[/ QUOTE ]

while true, this is not the biggest problem with his logic. the beta, vol, and return estimates he is basing his opinions on are historical, not expected, meaning that they will mostly fail to have predictive value. there is a level of expected return where BRK will be a better investment than the index based on their relative levels of vol (note that beta in this instance is unimportant for the comparison). the problem is, by only looking at historical return series, there is no real way to estimate the correct levels of vol and expected return to use when figuring this out.

JuntMonkey · #6 08-18-2007, 04:43 PM

Buy one share of A.

PRE · #7 08-18-2007, 04:50 PM

[ QUOTE ]
[ QUOTE ]
The S&P has much less unsystematic risk than any individual stock, even Berkshire. This is why it would be foolish to feel a portfolio consisting of only BRK would be a much better investment that that of the S&P 500.

[/ QUOTE ]

while true, this is not the biggest problem with his logic. the beta, vol, and return estimates he is basing his opinions on are historical, not expected, meaning that they will mostly fail to have predictive value. there is a level of expected return where BRK will be a better investment than the index based on their relative levels of vol (note that beta in this instance is unimportant for the comparison). the problem is, by only looking at historical return series, there is no real way to estimate the correct levels of vol and expected return to use when figuring this out.

[/ QUOTE ]

Yep, OP was essentially equating historical and future returns/risks. On a side note, BRK has actually been pretty volatile on a 10-year basis.

cbloom · #8 08-18-2007, 06:36 PM

The big problems with BRK today as I see at :

1. Warren may be retiring soon and who knows how well it will be run after that.

2. It's worth so much now that it's hard for them to make good moves in a percentage sense; their best moves are acquisitions, and it's hard to find good value companies to buy that are big enough to make a difference. They've been sitting on a ton of cash for a long time, which means it hasn't been doing anything productive for the fund.

But I'm still considering it.

PRE · #9 08-18-2007, 07:01 PM

[ QUOTE ]
The big problems with BRK today as I see at :

1. Warren may be retiring soon and who knows how well it will be run after that.

2. It's worth so much now that it's hard for them to make good moves in a percentage sense; their best moves are acquisitions, and it's hard to find good value companies to buy that are big enough to make a difference. They've been sitting on a ton of cash for a long time, which means it hasn't been doing anything productive for the fund.

But I'm still considering it.

[/ QUOTE ]

Ya I'd agree with point #2, not so much the first one (ex. GE)

mattnxtc · #10 08-18-2007, 07:06 PM

I was actually just reading an article about BRK the other day as they looked at the old WB as opposed to him when he was younger. The general thought is that nowadays he is so invested that he cant afford to make dramatic adjustments and that has actually cost him. (everybody knows about the coca cola issue).