How Much is Too Much BRK?

[Montecfo]

Something to keep in mind is the stock market is forward-looking. His imminent demise is baked into the stock price. Warren Buffet suggested the stock would go -up- on the day that he died. Maybe he was being silly, but knowing him he was being serious. As for the business as a whole, nothing will replace him. I imagine the machine would run successfully for a long time, but it just wouldn't be the over-the-top-fabulous-place that it is now.

Sure. But the stock might rally if he leaves the helm. So that is likely not "baked in".

Rally due to possible breakup of company.

The stock market is a discounting mechanism but it is inefficient.

 

[RxMan]

I just initiated a very small position of BRK recently after following it for a long time. I actually purchased those shares within my Roth IRA because I anticipate a change in their dividend philosophy soon. I expect the company to begin returning at least a share of their earnings to shareholders in the form of dividends. If I’m wrong it’s not a big deal for my portfolio either way.

BRK owns a hair over 895 million shares of Apple stock currently which is by far their largest holding. This amount puts their holdings at a value of about $154 billion at current prices. The most recent market cap figure I’ve found for BRK as a whole company is around $715 billion. This means approximately 21.5% of the total value of BRK is derived from one equity position in Apple. If you are comfortable betting that much on Apple then BRK is a good investment. If not maybe look elsewhere.

It is worth noting that as recently as Q4 of 2022 Buffett was increasing his stake in Apple through a purchase of approximately 334,000 shares. That however is a minuscule amount compared to the company’s overall holdings.

I’d personally prefer a more diversified approach but Buffett is comfortable making more concentrated investments for the opportunity to outperform the overall markets. He’s also the best allocator in history (in my opinion) so who am I to argue with his approach. I also don’t own Apple stock directly so in a way this is just an indirect method for me to get exposure to Apple stock with some diversity in holdings built in as a bonus. I just wanted to give everyone some specifics for perspective.

 

[copyright1997reloaded]

I don't currently own any BRK directly (did own a small position a couple years ago). However, 14% of my net worth is in Apple, and I consider that "too much". Although it has been (and was nice this past Friday) a great investment, I've been trimming some each year for the last few years.

Hopefully I am not letting the tax tail wag the dog (it is in my regular/taxable brokerage account and it would be good if my beneficiaries could eventually get that nice step up in basis).

All this from a once very modest investment in Apple (circa 2000).

 

[Martlet]

This question of concentration of holdings vs diversification was posed to Buffett and Munger in the annual meeting Q&A yesterday, I think in the context of Apple being a large fraction of BRK. If I recall, Buffett said that BRK is diversified and that in his view some of the wholly owned businesses are larger parts of its portfolio than Apple. Also that BRK is the stock that is most closely correlated with the US economy as a whole. Munger said that portfolio diversification was one of the dumbest ideas in modern wealth management and that he'd much rather own his three best ideas than owning all his ideas good and bad.

In this year's Buffet letter to shareholders, he says that almost all of his gains have come from twelve good decisions over fifty seven years and lists among them Coke, Amex, Geico and Apple. The metaphor is the weeds die off and the flowers bloom. For this to be true, the winning bets need to have been significant and the positions need to have been held as they grew.

I don't own BRK at present but am considering buying some as an alternative to VOO or similar. I'd probably buy it in a retirement account.

My view is that if you're an active investor, or in the part of a portfolio that is managed actively, this wish to not be concentrated is in many cases a mistake. In a passive portfolio, then BRK is either a replacement for broad market index funds or it's a component of an index-tracking portfolio.

Avoiding concentration makes more sense at the margin between gambling and investing, for example in angel investing or in pre-revenue biotech companies. In those cases you need to place enough bets to allow the overall favorable odds to be reflected in your returns, in other words to be confident of buying your fair share of winning tickets.

 

[clifp]

My view is that if you're an active investor, or in the part of a portfolio that is managed actively, this wish to not be concentrated is in many cases a mistake. In a passive portfolio, then BRK is either a replacement for broad market index funds or it's a component of an index-tracking portfolio.

Avoiding concentration makes more sense at the margin between gambling and investing, for example in angel investing or in pre-revenue biotech companies. In those cases you need to place enough bets to allow the overall favorable odds to be reflected in your returns, in other words to be confident of buying your fair share of winning tickets.

The reason I own Berkshire, is quite simple. I own plenty of asset that will do well in bull market. If Berkshire only goes up 7% a year while the market goes up 10%, my retirement isn't affected.

If we have a crash and the market drops by 2/3. I'd expect Berkshire to only drop 30-40%. For several reasons, first they own mostly stodgy old companies that do boring stuff. Even Apple, is much more of a value stock than growth. (I'm personally underwhelmed by the new pink iPhones)

Second, Berkshire's size and balance sheet put it in a class by itself. As Warren explained in the shareholders meeting, in the next financial crisis,if you are a bank, brokerage or insurance company, and you need cash fast, Berkshire is going to be your first, and many cases your only call. As we saw in 2008/9 the Warren Buffett seal of approval is super important and neither of his successors are going to have that cachet, but they do have his balance sheet.

 

[jfn111]

I've just let BRK run over the years in my wife's IRA. It's currently 11.6% of my wife's roll over IRA, starting about 4%. It's currently 1.8% of our overall investments so I will just leave it alone.

 

[53anddone]

I'm fortunate enough to not need dividends really to live on so BRK fits the bill for me in terms of keeping my taxes low. I am starting to sit on a sizeable cap gain on it also so I think the kids will get this one in another 25 years or so.

I enjoyed watching the Annual Meeting - I think I may need to go next year while (hopefully) both WB and Charlie are there.

 

[Sunset]

We have a sizeable chunk in BRK, over 10% which is for any stock considered a high concentration.
But, since BRK is really many companies, our concentration in any one company is not too large.

For easy numbers, assume we have 20% in BRK, that would translated to Apple as 20% * 21.5% (BRK apple holdings) = 4.3% of our holdings in Apple.

Add in the VTI shares we have and other funds, and it might add another 1% of Apple overall.

 

[pjigar]

The reason I own Berkshire, is quite simple. I own plenty of asset that will do well in bull market. If Berkshire only goes up 7% a year while the market goes up 10%, my retirement isn't affected.

If we have a crash and the market drops by 2/3. I'd expect Berkshire to only drop 30-40%. For several reasons, first they own mostly stodgy old companies that do boring stuff. Even Apple, is much more of a value stock than growth. (I'm personally underwhelmed by the new pink iPhones)

What you are eluding to is "negative correlation" with the market. This is precisely why I hold BRK since the bonds lost the negative correlation with stocks for a while now. FWIW about 30% of my stock portfolio is in BRK and I am OK with the concentrated position.

 

[clifp]

What you are eluding to is "negative correlation" with the market. This is precisely why I hold BRK since the bonds lost the negative correlation with stocks for a while now. FWIW about 30% of my stock portfolio is in BRK and I am OK with the concentrated position.

I wish it was negatively correlated, It has a beta of .87 so that helps a bit during a bear market. During both 2008 and 2022, it lost significantly less money than the S&P, even eeking out a small gain in 22.

One of the problems with indexing is it increases positive correlation of stocks.

Ever since it was obvious circa 2015 or so that bonds were no longer going to be negatively correlated with stocks, I've been looking for a bond replacement, gold, real estate, angel investments, a solar business. None are perfect, but Berkshire is pretty useful. It is only 15% of my net worth, but I wouldn't be uncomfortable at 30% either.

 

[pjigar]

I wish it was negatively correlated, It has a beta of .87 so that helps a bit during a bear market. During both 2008 and 2022, it lost significantly less money than the S&P, even eeking out a small gain in 22.

One of the problems with indexing is it increases positive correlation of stocks.

Ever since it was obvious circa 2015 or so that bonds were no longer going to be negatively correlated with stocks, I've been looking for a bond replacement, gold, real estate, angel investments, a solar business. None are perfect, but Berkshire is pretty useful. It is only 15% of my net worth, but I wouldn't be uncomfortable at 30% either.

I hear you. We also have RE in the mix as well to replace bonds. We hold close to zero bonds (except a few I-bonds) currently which may change once I stop working.