Buffett also seems like he was temperamentally made for this job which most people aren't. Also, during 1940-1960, stocks were extremely cheap and he was able to learn from the best person at that time (Graham) and reap a lot of benefit during that time. People expecting that they can beat the market when so much information is available to everyone, which wasn't during that time to everyone, is just kinda overestimating your ability.
Graham talked about this. Times changed and it got harder to pick stocks. He even discussed the idea of owning a cross section of stocks instead of picking individual companies before index funds had been proposed.
Also, Mr. Buffet was born into a high paying job and is a workaholic. His father's library was full of books on economics and Buffet grew up during the depression so reading was his hobby.
@@samsonsoturian6013 His father was also a politician, quite wealthy businessman with many connections and was himself an investor. Warren Buffet is one of a kind in his ability but he was also extremely lucky in every aspect.
As with many highly successful people luck sometimes plays a big part. Right place, right time, right skillset. If he was starting out now he may not have been as successful.
It seems he could age (bald with beard) or revitalize (decent hair and shaved) between -30 and +30 years, it's amazing. I'd love to have his wife interviewed regarding this rofl
@@spicy_xingerGoing from 10 mph to 15 mph is 50%. Also going from 60 mph to 90 mph is 50%. But it is harder, more fuel is used and takes longer to get the same 50%.
@@spicy_xinger matters because you can stay solvent for much longer, dca down further, spread high risk investments etc. Then there is emotional involvement as well, too little and you really don't invest as seriously as you should and to big of a percentage of little capital and you can get too emotional. If I have a safe 100M in the bank my approach to investing would be much different than if I threw in all my life savings.
Technically having less capital makes you able to get higher returns, Warren himself said he'd do better if he only had to invest $1 million. Too much capital limits your options
It’s hard to admit, ego-wise, that you’re part of “most people” and are probably better off owning the index. IMO people with a gambler’s mindset rather take on risk than take the save option. Every video I watch hammers home the same message: you probably won’t beat the index and you’re probably best of participating with the index. Boring, rational but good enough.
He is also a reason I started indulging myself with Cola sometimes. I used to think the drink is extremely bad for you and completely avoided it, but looking at Warren, the most famous Cola drinker of all time, and his good health, I started doubting it 😆
In contrast to Warren, Charlie preferred Berkshire stock (to an index fund) and instructed his family to hold it also. Not that I disagree..but Berkshire's relatively large cash position and failure to take full advantage of market volatility over the past decade (esp in 2020) probably account for his trailing the market. The rampant bull market of the past decade or so might also have resulted in fewer Buffett-favorable opportunities, which also affect returns. Slimmer pickings in US waters, Charlie looked more at the Chinese market, Warren in Japan. I own BRK.B and the S&P and I can't say I have been disappointed with the returns of either. The man is a legend.
I love that you are redoing some of the old videos with more content and updated information. I actively watch CSI and listen to Rational Reminder to keep me in check so that i keep passively investing and beat my urge to gamble every now and then
@@djayjpWhere did you learn this? Merriam-Webster doesn’t seem to agree. Either way, if you define loss as comparative to expected risk-adjusted returns, “gambling” still makes sense if using your definition.
@@andrewmorehead3704 Yeah that could be valid. Then if you slightly expand the definition to include opportunity cost vs a broad index and the risk of underperformance, it could include that as well.
Another thing Berkshire had going for it was the insurance business. It’s much easier to expand and acquire cash flow strong businesses when you can effectively borrow at a negative rate.
The issue is no one had ever made any money from Berkshire Hathaway from holding their stock. It pays no return... Their is only ponzi profits from selling to another investor. Who will in turn have to find another investor... Etc.. How people cannot see that as a fundamental problem is beyond me.. I like investments that actually pay me a return, not relying on other investors bidding up the price to make any money.. If BH was a good investment you would never have to sell it to make any money.. it is a ponzi asset.. their is little prospect of any cash flow coming from it . Only fools would buy the stock. Real stock investments you can expect a return next month or quarter in the form of CASH FROM the business... It is a speculation..
@@mysticjedi6730The company might be over or undervalued +-20%, but their value is mostly derived from their underlying assets (owned stocks). Meaning it is hardly any more of a ponzi scheme than the stock market they're invested in. Also the cash flow problem can be solved by selling ~1-3% of your shares every year, which ends up being similar to dividend stocks. You're dwindeling your stock over time, but your asset value will still go up, you can compensate for this by going more aggressive in selling during good years, and buying more stocks during bad years. This ofc doesn't mean you're going to make more money, but it caters to your needs of either requiring cash flow, and/or not wanting to dwindle shares over time. Important to remember that these choices can both underperform and overperform just holding the shares.
Let's not forget that Buffet took over companies like Geico and changed management to increase profits and the value of company stock. Most investors do not have that influence over stocks they buy.
_Decomposing Berkshire’s portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett’s returns are more the result of stock selection than of his effect on management._
The way I see it, is if you do your own investing and look for things under around 50 million, there’s very few institutional investors putting resources into analyzing those businesses, they’re mostly insiders or individual investors. They’re far more volatile and more likely to be priced incorrectly. Otherwise, it is better to just use a low cost index fund.
You should do a more indepth video on diversification and portfolio construction. Like VT and VTI are almost perfectly correlated, but their beta is not the same, so there is some diversification benefit etc
Hey ben im new to finance and your videos has helped me A LOT of understanding investing more despite the complexity of some of the topics you talk about. i have been trying to reach you but i hope you see this, i have one question that has been on my mind for a while and that is what is the point of portfolio/fund managers if they cant beat the market? i would really love to hear the answer from your perspective. Wish you the best and i hope you and your loved ones have a great happy new year!
Well, you are only as good as your self-concept. Berkshire, Microsoft, Google are just of a reflection of the founder's billionaire identity. "Everything is energy and that's all there is to it. Match the frequency of the reality you want and you cannot help but get that reality." - Albert Einstein
Private investments don't overperform. They should, but they don't because there's enough private equity firms chasing that extra premium and also enough fund managers using illiquid investments to HIDE LOSSES that there's nothing extra.
@@samsonsoturian6013 I'm not saying that private equity funds outperform in general. I'm saying that Berkshire's carefully chosen private companies are integrated into the conglomerate, and through their cash flows they increase the value of Berkshire stock.
_Decomposing Berkshire’s portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett’s returns are more the result of stock selection than of his effect on management._
There is a big difference between recognizing that it is difficult to find a bargain to spend billions of dollars on currently and claiming that the market is about to crash as the reason to have a lot of money in cash, rather than in index funds. .
My view of Buffett is that he hasn't lost his Midas touch, but that the money has simply moved to the one sector he sworn he will not touch: technology. If you look at the ranking of companies by market cap, you will find that there are really only about 10 companies with a higher valuation than Berkshire, and they are all tech stocks (i.e. Apple, Microsoft, Meta, etc.). These are the only companies that can afford to give Berkshire above-market returns and he has largely stayed out of them due to his philosophy of not owning companies he does not understand.
My perspective on cash has changed the more I think about retirement. Keeping cash isn't necessarily about timing the market or trying to get higher returns by deploying money in a downturn. Keeping cash is purchasing a degree of security. If I'm solely reliant on investments for my income, then a key part of success is not just the overall rate of return, but the ability to pull money out at the right time so that the investments have longevity. Cash is a buffer that can extend the window of time where you wait for the market to recover. You don't want to be forced to pull out investments when the timing isn't great.
Yep, that’s basically why the recommendation for retail investors is to have an emergency fund! It’s also why TDFs in the retirement phase have a significant cash position in addition to short and mid term bonds.
I agree. But, what is the correlation between gains of the S&P 500 and brk.b. If they are less correlated over history. It may make sense to own both. Particularly, since there is a cash pile.
Buffet had wisdom beyond his years. He took advantage in the early when information wasnt perfect and there were undervalued goldmines. Nowadays there are sophisticated algorithms using every conceivable valuation method so these opportunities are harder to find.
Great advice Ben! I do read financial statements and try to pick stocks that will beat the S&P 500 with mixed results. But what none of your analysis considers is the enjoyment one gets from the hunt. At least I'm not paying someone else to hunt for me.
I am curious what your thoughts on BRK upon his passing, short term. Also, since he gave direction to his executors that his estate has to be fully dispersed to the charities within 10 years of his passing, what does that mean to BRK long term?
@@BenFelixCSII wonder if anticipation of these things is part of BRK’s lackluster performance in recent years? I imagine that would suppress valuations. I guess the question that no one can know the answer to ahead of time is whether those expectations will be realized.
same here since i have a significant stake in berkshire. liquidating his stake over 10 yrs will dump a lot of shares in the market thus depressing the share price. my take on it... the intrinsic value of the company however will not be changed and i suspect Abel will end up putting a floor on the share price if it becomes attractive pricewise as well as other investors. after the share turmoil of 10 yrs then it will be priced the usual way and the drop may have been looked upon as a good buying opportunity. i look at my berkshire stock as my bondlike holding. steady internal cash flow and not dropping as much during down markets but not outperforming during great markets but still out earning bonds.
20 днів тому
Great video, Ben. Very informative as all of your videos are.
What an absolutely outstanding video! I would consider it perfect, but I think it was missing just one thing: the "how" of accessing "buffet-style" indexing. I would love examples of index funds that accomplish that, or resources about a sample portfolio of this kind. Could you make a video in that style? It would be a "favorite of all time" for me for sure.
Yes, it's definitely cheeky to say "oh, by the way there is a way to outperform the index... I'm just not going to tell you what it is". I'm willing to make more than the index funds. But I won't be if you keep being this cheeky.
It wasn't covered in specifics, but in what he said it essentially means a small cap value tilt with AVUV which is a small cap fund with a specific focus on value. He has it included as a part of his recommended portfolio as well. The caveat being you might have under performance for periods or even long periods and it might take a long holding time to obtain the out performance and there's no guarantee. Then, of course, there's also just using leverage, though I'm not willing to go that far.
@@SGyru Makes sense. Can I ask where you get this AVUV "recommendation", if such it be? First time I've see a vid on this channel. I have some small caps (index funds). Logic screams that their time might be coming soon. Fairly soon. Might.
Look up Ben's past videos on factor investing, he has a lot of them. The way that PWL accesses factor investing (and how Ben invests his own money) is via Dimensional's funds.
@@SeaJay4444Right, dimensional funds aren't for everyone and still charge higher fees than usual. So, it's crappy advice to say you should not pick individual stocks to outperform. It's actually the only way, coming of course with the risk of underperforming if you aren't among the best.
Something not mentioned in the video but that still is important to discuss this topic: Buffett outperformed the market by taking trading decisions on the basis of information that the retail trader would never be able to access. This is less true today, but very relevant with respect to the golden years of Berkshire Hathaway.
Very interesting, and I'm looking forward to Dr. Sven Carlin's response! Core-satellite strategy = best of both worlds (index funds with individual stocks, passive and active).
In one of those interviews I think I remember Munger was disagreeing and saying “I like Berkshire” instead of index funds. I don’t think he explained the reason.
Buffet's lack of modern performance is not just due to the fund's size: the market is much more sophisticated today and the kinds of mispricings and opportunities he took advantage of back in the day simply don't exist in today's more efficient market.
I am holding some BRK.B purely because it does not pay dividends and that's a huge advantage in Switzerland where we have no capital gains tax but dividens are taxed as income
Yet Warren Buffett also consistently sells when the market is expensive and buys when it is cheap and has been in majority cash before every economic downturn since he has been investing. Easy to beat the market substantially if you miss out on any of the major downturns
It seems to me that there are rather profound implications in asset pricing if every investor (big, little, in between) invested in low cost index funds. It seems to me that market prices are determined by myriad investors looking for an edge. If those investors stopped trying what would happen to the prices of these assets? I'm not sure. But as I have a great deal of respect for your intelligence and insight Ben, I'd greatly appreciate your thoughts on this matter. Thanks
Simple way to outperform $SPY is buying $SSO during corrections using new cash and selling small part of $SPY during extreme VIX spikes. Holding some $QQQ also increases total performance comparing to pure $SPY.
One thing I don’t understand is why having billions of dollars vs having significantly less matters? If you’re investing the same % into the same basket, then the return % will be the same. Why then does it make sense for Berkshire to hoard cash to make the moves they want to, while it doesn’t make sense for the avg Joe to do the same???
A lot of his gains are from smaller companies, which he cant replicate at scale. I don't know why he doesnt pay out his cash as dividends as he's said managers should do as much if they can't generate market beating returns.
Berkshire buys companies. Say after months of research Buffett identifies XYZ company as the next big thing and he wants to buy all of it. XYZ is a small company worth $50 million and Buffett has $1 billion in funds to invest. So he buys XYZ. Now what? He can't buy 20 copies of that one small company, there's only one of them. So what does he you do with the other $950 million? If he was only managing a $50 million fund, he'd be all set and 100% invested, but since he has a lot more money to invest, it gets harder and harder to find high quality, low cost companies to invest in. There just aren't that many in the whole world.
1:07 "Recent history has been less favorable" Yes, because we've been in a nearly 20 year bull market. A lot of people are currently swimming naked. Berkshire Hathaway will outperform, when we hit the next bear market. Watch and learn.
*I had problem comprehending trading in general. I tried watching other UA-cam trading channels, but they made the concepts more complicated. I was almost giving up until when i discovered content and explain everything in detail. The videos are easy to Follow*
Trading on a demo account can definitely feel similar to the real market, but there are some differences. It's important to remember that trading involves risks and it's normal to face looses sometimes. One piece of advice is to start small and gradually increase your investments as you gain more experience and confidence. It might also be helpful to seek guidance from experienced traders or do some research on different trading strategies
The first step in every successful investment is to establish your goals and risk tolerance, a task best undertaken with the assistance of financial advisor.
In your opinion what is a better strategy, to buy an asset allocation ETF like XEQT or individual index funds and set allocations yourself, because we know those asset allocation ETFs are overweight in Canada ? Thank you.
Not a planner but there is no "better" strategy. Just whatever works for your situation and preferences. Asset allocation takes the hassle away of re-balancing yourself. Individual funds take more work to set your targets and rebalance yourself while coming with a slightly lower cost. However, it also allows for more room to tinker and tempt you into trying to time markets or stray from your original targets. Regarding overweight, Vanguard suggests 25-35% CAD weighting because of things like volatility and currency risk. Afterall, we use CAD $ to pay bills.
I've also heard speculation that another reason for Buffett's early success was because markets then (50's and 60's) were a lot less efficient at sniffing out good value stocks. There was a lot more low hanging fruit.
Hi Ben, thanks for the vid. I never have quite understood the rational of investing "outside" of the US as the S&P containing most of the largest companies in the world thus doing business across the planet. Should the American market falter, don't you think there would be enough outside business to keep the S&P outperforming? Other than India, I can't think of an emerging "stable" market that would out perform even a weak S&P ETF, over the long term. Thoughts?
So factor investing can beat total market ETFs? What do you think of attempting factor investing using back testing tools like portfolio123 so find good metrics to use?
It is not just Buffett's scale that describes difficulty beating the market. That's part of it. The other part is being slow or pessimistic about new technology.
I hear a lot about using leverage from lifecycle investing to a leveraged 60/40 portfolio but I don’t hear how to effectively use it. It seems like berkshires ability to use leverage with factor investing seems to make it a solid choice. Is this line of thinking wrong?
PWL is not trying to beat the market but rather provide financial planning to ensure financial goals are met, tax management and estate planning. They use funds from Dimensional, which are not available to the average Canadian investor, that are considered a market portfolio with a tilt towards small, value, profitability.
Hey, Ben, i have to mention that your content is amazing. I also have a question regarding buying stocks: do think that if a person knows fundamental analysis, that person will have some capacity to detect a good stock that will increase in value over time?
Hi Ben, can I ask, if Berkshire invested in the factors you described, would they likely outperform the S&P500? (And themselves currently?) Berkshire seemingly continues to invest in high quality businesses with resilient earnings potential but have left the size and value premiums behind possibly due to added work of manually selecting stocks. If they had instead continued to isolate the factors that originally drove Buffet’s success, would they themselves be in a much better position today? (Of course at the cost of added risks!) Thank you! 🥰
To follow up, does this imply there is a clean correspondence of risk tolerance to ideal portfolio management? So for a given individual’s risk tolerance profile, there is a clearly defined mix of factor exposures with little to no headache as to what is optimal? Thanks again! ❤
Which basically means all that is left is to carefully define what a person’s risk tolerance will be over time along with a plan for the various outcomes that may happen as it unfolds?
Do you differentiate between active Funds that are stockpicking directly and the methodology of active Funds, that follow a certain ruleset (ae. things like avantis avwc try to tilt towards factor premiums, but are nevertheless relatively cheap active ETFs)?
Regarding Buffett's S&P 500 advices... At a small scale, long S&P 500 makes sense. But at a large scale like BRK, long S&P 500 will likely just move the market with premiums in the orders, and will definitely incur a lot of unnecessary fee.
Now that these factors have been identified, and people are optimizing their investments for them, wouldn’t that drive up the price of companies that match the factors and therefore decrease their future performance?
I think you missed the point. Anybody with $500 can buy BRK.B which essentially is just letting him do the investing for you. Why copy his portfolio when anybody can buy into it?
@@pastramikingthe question is whether BRK.B can be expected to continue outperforming the market. If its previous realized returns can be attributed to systematic factors, it would make more sense to invest that way than to hope that Buffet’s successors (or Buffet himself, if he could live forever) would duplicate that past performance going forward. Also partial shares mean you wouldn’t need $500.
At what number do you start seeing diminishing returns? I’m sure it’s in billions. That is why this is the edge of retail investor. We can do whatever we want right or wrong but we have more options and freedom compared to any money manager. It’s much easier to beat S&P 500 and many do. As for your business, what’s the point of you can’t beat the market? Why would anyone use your services? Just curious.
Active managers have to be active. They have to do stuff. Reallocate the Stocks depending on percentage, or chase the Market if they were down one year, for example. If you don't have to chase anything, and you buy amazing companies when they are down and can wait... You should be able to beat the market long term... Or am I wrong.
Please make a video discussing the rapidly increasing US federal debt. Is there a "tipping point"? Is this something investors should be concerned about?
Thanks for the great content and this channel ! I would like to hear from you about the theory that we might be at a pivot point in a long term cycle : globally since 1918, world has been on more globalization and added exchange. Now we might be on the verge of a deglobalisation aka fragmentation in trade, like it happened from 1850 to 1914. This megatrend will certainly influence the stocks via the expected returns. So maybe a return in grace of the active managment ?
I came across an interesting observation once that highlighted that the number of portfolio managers that have outperformed their respective benchmark is actually less than the expected number that would have succeeded this feat due to chance alone. If anyone can point me to this paper/study, that would be greatly appreciated!
The five factor model gave an edge, when it was unknown to the wide audience. Is it logical to assume, that now when it's open information, it's just became a part of the regular market returns without giving you any significant premium anymore?
In theory the factors in the model are risk premiums. Risk premiums will not be arbitraged away when they become known. Empirically, they decline post-publication, but are still persistent.
He says for Us investors that’s probably fine. He said a global market cap weighted portfolio is the most optimal “for most people” meaning people who don’t feel the need to factor tilt like you said.
@kenwen7791 he has a previous video called "my portfolio" or something like that where he shares it and has an equiv us version. I think he mentions doing a one fund portfolio as well in it.
I wonder if those index funds are unbetten largly because of the auto buying inertia of retirment portfolio. Investment managers might out perform again if that system brakes down.
Speaking of leverage, what about SPYM or SPYQ ETFs that are balanced monthly or quarterly instead of daily that majority of leveraged ETFs are. Doesn't that change things?
Great Video as Usual Ben. I am surprised and ashamed that the comments are full of disrespectful people. I am sorry for them and more for the parents growing/having such creatures. Thanks a lot.
Ben, can you do a video about what to do you can't invest in low-cost index funds, which is essentially what happens for expats in the EU? The EU bans EU residents from buying US based ETFs and the IRS considers all foreign ETFs PFICs and treats them very punitively. Sometimes you have to pick a portfolio consisting of individual companies and it is annoying to only hear about SP500 index funds when you are restricted from doing that...
Borrow cash from the brokerage, pay interest and repay when you think the stock or fund you've selected has peaked and you can sell partially and repay the loan. Alternatively, take a personal loan from a bank or from wherever you can get cash at the lowest APR
To be honest even small cap value indexes run into a scale problem, and sometimes have to add small mid cap companies, because there is a limit to how much of a given company they can buy. Furthermore both small cap value funds and Warren Buffett (who has access to 1.7X low interest non-callable margin) are failing to outperform the S&P in the last decade or so. The Small Size and Value premiums have been taking a back seat to the large growth parts of the market. Of course some analysts think that small cap value will shine when another crash occurs, and that small cap value will recover faster and stronger than the wider market. If this happens while Buffett is still in charge, I expect he will similarly out perform when the Size and Value premiums are generally favored by market conditions again. The AI and FAANG companies won't power market returns forever, eventually they will fall out of favor.
Buffett also seems like he was temperamentally made for this job which most people aren't. Also, during 1940-1960, stocks were extremely cheap and he was able to learn from the best person at that time (Graham) and reap a lot of benefit during that time. People expecting that they can beat the market when so much information is available to everyone, which wasn't during that time to everyone, is just kinda overestimating your ability.
Graham talked about this. Times changed and it got harder to pick stocks. He even discussed the idea of owning a cross section of stocks instead of picking individual companies before index funds had been proposed.
Also, Mr. Buffet was born into a high paying job and is a workaholic. His father's library was full of books on economics and Buffet grew up during the depression so reading was his hobby.
@@samsonsoturian6013 His father was also a politician, quite wealthy businessman with many connections and was himself an investor. Warren Buffet is one of a kind in his ability but he was also extremely lucky in every aspect.
As with many highly successful people luck sometimes plays a big part. Right place, right time, right skillset. If he was starting out now he may not have been as successful.
Or as Buffett said, he won the ovarian lottery
The hair, the new animations, the promotion, Ben has evolved to his final boss form
This is not yet his final form 💀
The old animations were iconic
It seems he could age (bald with beard) or revitalize (decent hair and shaved) between -30 and +30 years, it's amazing. I'd love to have his wife interviewed regarding this rofl
Everybody thinks they can be the next Warren Buffet while working another job and having little capital lol
Good video Ben, as always
Why does the amount of capital matter though? Genuinely curious
@@spicy_xingerSeriously? Going from 10 mph to 15 mph is 50%. Going from 60 mph to 90 mph is much harder and also 50%.
@@spicy_xingerGoing from 10 mph to 15 mph is 50%. Also going from 60 mph to 90 mph is 50%. But it is harder, more fuel is used and takes longer to get the same 50%.
@@spicy_xinger matters because you can stay solvent for much longer, dca down further, spread high risk investments etc. Then there is emotional involvement as well, too little and you really don't invest as seriously as you should and to big of a percentage of little capital and you can get too emotional. If I have a safe 100M in the bank my approach to investing would be much different than if I threw in all my life savings.
Technically having less capital makes you able to get higher returns, Warren himself said he'd do better if he only had to invest $1 million. Too much capital limits your options
Warren Buffett has been really quiet since this dropped.
😂
😂 He knew his snake oil stratagems and schemes would be smoked out one day. That day has come.
@@mikerodent3164lord have mercy hahaha, you are beyond clueless.
@@CM-so1cf You is t'ick m8
He'll drop his diss track response any day.
It’s hard to admit, ego-wise, that you’re part of “most people” and are probably better off owning the index. IMO people with a gambler’s mindset rather take on risk than take the save option.
Every video I watch hammers home the same message: you probably won’t beat the index and you’re probably best of participating with the index. Boring, rational but good enough.
Ben grows more hair the higher up in PWL he goes
He's like a finance Samson, the longer his hair the more successful he's in his career.
in the next stage he will be called super ben with blonde hair
The power of compounded growth
I follow Warren because he has good hair for his age 😂
I’ve heard this is a reliable indicator.
He is also a reason I started indulging myself with Cola sometimes. I used to think the drink is extremely bad for you and completely avoided it, but looking at Warren, the most famous Cola drinker of all time, and his good health, I started doubting it 😆
“hair” 😂 I love it ! 😢 But I really miss the bald guy 😂😂😂
Ben's has come in lots of varieties.
Definitely why I follow Ben’s!
In contrast to Warren, Charlie preferred Berkshire stock (to an index fund) and instructed his family to hold it also.
Not that I disagree..but Berkshire's relatively large cash position and failure to take full advantage of market volatility over the past decade (esp in 2020) probably account for his trailing the market. The rampant bull market of the past decade or so might also have resulted in fewer Buffett-favorable opportunities, which also affect returns. Slimmer pickings in US waters, Charlie looked more at the Chinese market, Warren in Japan.
I own BRK.B and the S&P and I can't say I have been disappointed with the returns of either. The man is a legend.
Definitely a legend. So much to learn from him.
Interesting conversation to have with WB in person about. No doubt he holds some cards close to his chest. Most extremely successful do.
Your explanation is always elegant and right to the point with no bullshit whatsoever!
Hey Ben, can you make a video about "the lost decade"? 2000 to 2009.
I love that you are redoing some of the old videos with more content and updated information.
I actively watch CSI and listen to Rational Reminder to keep me in check so that i keep passively investing and beat my urge to gamble every now and then
"Gamble" has a mathematical definition. It means your probability of profit is
@@djayjpWhere did you learn this? Merriam-Webster doesn’t seem to agree.
Either way, if you define loss as comparative to expected risk-adjusted returns, “gambling” still makes sense if using your definition.
@@andrewmorehead3704 Yeah that could be valid. Then if you slightly expand the definition to include opportunity cost vs a broad index and the risk of underperformance, it could include that as well.
@@andrewmorehead3704 Tried to respond but my 100% civil comment was censored ugh.
Financial Tortoise called... He wants his hair back
Another thing Berkshire had going for it was the insurance business. It’s much easier to expand and acquire cash flow strong businesses when you can effectively borrow at a negative rate.
.....and customers for insurance are pretty much mandated by law to purchase your product. What a deal.
The issue is no one had ever made any money from Berkshire Hathaway from holding their stock. It pays no return...
Their is only ponzi profits from selling to another investor. Who will in turn have to find another investor... Etc..
How people cannot see that as a fundamental problem is beyond me..
I like investments that actually pay me a return, not relying on other investors bidding up the price to make any money..
If BH was a good investment you would never have to sell it to make any money.. it is a ponzi asset.. their is little prospect of any cash flow coming from it .
Only fools would buy the stock. Real stock investments you can expect a return next month or quarter in the form of CASH FROM the business...
It is a speculation..
@@mysticjedi6730do you know anything about fundamental value at all? I think you better do an all in in tesla high leverage
@yoverale your reply comment seems incoherent. I am not sure what your point is. You will have to elaborate.
@@mysticjedi6730The company might be over or undervalued +-20%, but their value is mostly derived from their underlying assets (owned stocks). Meaning it is hardly any more of a ponzi scheme than the stock market they're invested in.
Also the cash flow problem can be solved by selling ~1-3% of your shares every year, which ends up being similar to dividend stocks. You're dwindeling your stock over time, but your asset value will still go up, you can compensate for this by going more aggressive in selling during good years, and buying more stocks during bad years.
This ofc doesn't mean you're going to make more money, but it caters to your needs of either requiring cash flow, and/or not wanting to dwindle shares over time.
Important to remember that these choices can both underperform and overperform just holding the shares.
Let's not forget that Buffet took over companies like Geico and changed management to increase profits and the value of company stock. Most investors do not have that influence over stocks they buy.
Yes, Buffet is the true owner of many companies. This is on a completely different level than outsider investors and CVs.
_Decomposing Berkshire’s portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett’s returns are more the result of stock selection than of his effect on management._
He can meet the ceo's and the board, and see if they're good
The way I see it, is if you do your own investing and look for things under around 50 million, there’s very few institutional investors putting resources into analyzing those businesses, they’re mostly insiders or individual investors. They’re far more volatile and more likely to be priced incorrectly. Otherwise, it is better to just use a low cost index fund.
I was so confused for a second lol I haven't watched you in a while so the hair caught me off guard 😅 Anyways, great video Ben!
You should do a more indepth video on diversification and portfolio construction. Like VT and VTI are almost perfectly correlated, but their beta is not the same, so there is some diversification benefit etc
Hey ben im new to finance and your videos has helped me A LOT of understanding investing more despite the complexity of some of the topics you talk about. i have been trying to reach you but i hope you see this, i have one question that has been on my mind for a while and that is what is the point of portfolio/fund managers if they cant beat the market? i would really love to hear the answer from your perspective. Wish you the best and i hope you and your loved ones have a great happy new year!
Well, you are only as good as your self-concept. Berkshire, Microsoft, Google are just of a reflection of the founder's billionaire identity.
"Everything is energy and that's all there is to it. Match the frequency of the reality you want and you cannot help but get that reality." - Albert Einstein
A big part of BRK's outperformance are the private companies it owns and manages. Retail investors will not be able to replicate this.
Private investments don't overperform. They should, but they don't because there's enough private equity firms chasing that extra premium and also enough fund managers using illiquid investments to HIDE LOSSES that there's nothing extra.
@@samsonsoturian6013 I'm not saying that private equity funds outperform in general. I'm saying that Berkshire's carefully chosen private companies are integrated into the conglomerate, and through their cash flows they increase the value of Berkshire stock.
Yes, Buffet owns businesses! He has full financial control over them. This is the most fundamental way to make money.
_Decomposing Berkshire’s portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett’s returns are more the result of stock selection than of his effect on management._
@@BenFelixCSI Or that Buffet doesn't play silly games with private company valuations and just focuses on getting profits and wages high
There is a big difference between recognizing that it is difficult to find a bargain to spend billions of dollars on currently and claiming that the market is about to crash as the reason to have a lot of money in cash, rather than in index funds.
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My view of Buffett is that he hasn't lost his Midas touch, but that the money has simply moved to the one sector he sworn he will not touch: technology. If you look at the ranking of companies by market cap, you will find that there are really only about 10 companies with a higher valuation than Berkshire, and they are all tech stocks (i.e. Apple, Microsoft, Meta, etc.). These are the only companies that can afford to give Berkshire above-market returns and he has largely stayed out of them due to his philosophy of not owning companies he does not understand.
Buffett says 10% SGOV + 90% VOO, and I’m assuming you would say 100% VT if you don’t want to factor tilt.
My perspective on cash has changed the more I think about retirement. Keeping cash isn't necessarily about timing the market or trying to get higher returns by deploying money in a downturn. Keeping cash is purchasing a degree of security.
If I'm solely reliant on investments for my income, then a key part of success is not just the overall rate of return, but the ability to pull money out at the right time so that the investments have longevity. Cash is a buffer that can extend the window of time where you wait for the market to recover. You don't want to be forced to pull out investments when the timing isn't great.
Yep, that’s basically why the recommendation for retail investors is to have an emergency fund! It’s also why TDFs in the retirement phase have a significant cash position in addition to short and mid term bonds.
I agree. But, what is the correlation between gains of the S&P 500 and brk.b.
If they are less correlated over history. It may make sense to own both. Particularly, since there is a cash pile.
Merry Christmas Ben and everyone in the comment section merry Christmas 🎄🎁 !
You made chief! Congrats man, its been while since I watched your videos - glad to see you growing
Beating the S&P500 is like running a marathon sub 2h05. Yes there are people doing it but the chance of you being one of them is pretty slim.
Buffet had wisdom beyond his years. He took advantage in the early when information wasnt perfect and there were undervalued goldmines. Nowadays there are sophisticated algorithms using every conceivable valuation method so these opportunities are harder to find.
Great advice Ben! I do read financial statements and try to pick stocks that will beat the S&P 500 with mixed results. But what none of your analysis considers is the enjoyment one gets from the hunt. At least I'm not paying someone else to hunt for me.
It is great fun. In moderation.
Thanks Ben, I believe Morgan Housel also recommends the strategy of investing in a globally diversified low cost equity index fund !
My calls on Ben’s hair are paying off
I am curious what your thoughts on BRK upon his passing, short term. Also, since he gave direction to his executors that his estate has to be fully dispersed to the charities within 10 years of his passing, what does that mean to BRK long term?
I don’t have any specific predictions since the market knows all those things are coming, but I am also curious to see how it plays out.
@@BenFelixCSII wonder if anticipation of these things is part of BRK’s lackluster performance in recent years? I imagine that would suppress valuations. I guess the question that no one can know the answer to ahead of time is whether those expectations will be realized.
same here since i have a significant stake in berkshire.
liquidating his stake over 10 yrs will dump a lot of shares in the market thus depressing the share price. my take on it... the intrinsic value of the company however will not be changed and i suspect Abel will end up putting a floor on the share price if it becomes attractive pricewise as well as other investors. after the share turmoil of 10 yrs then it will be priced the usual way and the drop may have been looked upon as a good buying opportunity.
i look at my berkshire stock as my bondlike holding. steady internal cash flow and not dropping as much during down markets but not outperforming during great markets but still out earning bonds.
Great video, Ben. Very informative as all of your videos are.
Forget about all the finance business - I find his hair is amassing!!
What an absolutely outstanding video! I would consider it perfect, but I think it was missing just one thing: the "how" of accessing "buffet-style" indexing. I would love examples of index funds that accomplish that, or resources about a sample portfolio of this kind.
Could you make a video in that style? It would be a "favorite of all time" for me for sure.
Yes, it's definitely cheeky to say "oh, by the way there is a way to outperform the index... I'm just not going to tell you what it is". I'm willing to make more than the index funds. But I won't be if you keep being this cheeky.
It wasn't covered in specifics, but in what he said it essentially means a small cap value tilt with AVUV which is a small cap fund with a specific focus on value. He has it included as a part of his recommended portfolio as well. The caveat being you might have under performance for periods or even long periods and it might take a long holding time to obtain the out performance and there's no guarantee. Then, of course, there's also just using leverage, though I'm not willing to go that far.
@@SGyru Makes sense. Can I ask where you get this AVUV "recommendation", if such it be? First time I've see a vid on this channel. I have some small caps (index funds). Logic screams that their time might be coming soon. Fairly soon. Might.
Look up Ben's past videos on factor investing, he has a lot of them.
The way that PWL accesses factor investing (and how Ben invests his own money) is via Dimensional's funds.
@@SeaJay4444Right, dimensional funds aren't for everyone and still charge higher fees than usual. So, it's crappy advice to say you should not pick individual stocks to outperform. It's actually the only way, coming of course with the risk of underperforming if you aren't among the best.
Ben just calling balls and strikes. Thanks for another great video. Merry Christmas to you, yours and the PWL team.
Something not mentioned in the video but that still is important to discuss this topic:
Buffett outperformed the market by taking trading decisions on the basis of information that the retail trader would never be able to access. This is less true today, but very relevant with respect to the golden years of Berkshire Hathaway.
Great video Ben. I really like your videos.
Amazing work by Warren Buffet over all these years.
Merry Christmast 🌲🎁
Very interesting, and I'm looking forward to Dr. Sven Carlin's response! Core-satellite strategy = best of both worlds (index funds with individual stocks, passive and active).
Thanks brother. Your videos are always appreciated in this crazy meme market we live in.
Passive market investor here. Its about time.i do not have time to do it myself and most investment mangers suck
This was the video from you that I was looking for! Excellent content, as always 🙏
In one of those interviews I think I remember Munger was disagreeing and saying “I like Berkshire” instead of index funds. I don’t think he explained the reason.
Buffet's lack of modern performance is not just due to the fund's size: the market is much more sophisticated today and the kinds of mispricings and opportunities he took advantage of back in the day simply don't exist in today's more efficient market.
Any proofs?
@@M0ns1gn0r its true.
The internet? The one you’re using to comment right now? Dumbass lmao
I am holding some BRK.B purely because it does not pay dividends and that's a huge advantage in Switzerland where we have no capital gains tax but dividens are taxed as income
samn such an amazing video. love the data and research backed approach
Yet Warren Buffett also consistently sells when the market is expensive and buys when it is cheap and has been in majority cash before every economic downturn since he has been investing. Easy to beat the market substantially if you miss out on any of the major downturns
It seems to me that there are rather profound implications in asset pricing if every investor (big, little, in between) invested in low cost index funds. It seems to me that market prices are determined by myriad investors looking for an edge. If those investors stopped trying what would happen to the prices of these assets? I'm not sure. But as I have a great deal of respect for your intelligence and insight Ben, I'd greatly appreciate your thoughts on this matter. Thanks
Simple way to outperform $SPY is buying $SSO during corrections using new cash and selling small part of $SPY during extreme VIX spikes. Holding some $QQQ also increases total performance comparing to pure $SPY.
Great video, as usual. I wish you, your family and everyone on PWL a merry indeX-mas!
Thanks Ben, I always appreciate your videos!
One thing I don’t understand is why having billions of dollars vs having significantly less matters? If you’re investing the same % into the same basket, then the return % will be the same. Why then does it make sense for Berkshire to hoard cash to make the moves they want to, while it doesn’t make sense for the avg Joe to do the same???
A lot of his gains are from smaller companies, which he cant replicate at scale. I don't know why he doesnt pay out his cash as dividends as he's said managers should do as much if they can't generate market beating returns.
Berkshire buys companies. Say after months of research Buffett identifies XYZ company as the next big thing and he wants to buy all of it. XYZ is a small company worth $50 million and Buffett has $1 billion in funds to invest. So he buys XYZ. Now what? He can't buy 20 copies of that one small company, there's only one of them. So what does he you do with the other $950 million? If he was only managing a $50 million fund, he'd be all set and 100% invested, but since he has a lot more money to invest, it gets harder and harder to find high quality, low cost companies to invest in. There just aren't that many in the whole world.
@@papacharlie-niner148 thanks for explaining!
1:07 "Recent history has been less favorable" Yes, because we've been in a nearly 20 year bull market. A lot of people are currently swimming naked. Berkshire Hathaway will outperform, when we hit the next bear market. Watch and learn.
A touch of class with this video, good points, good references, thank you!
*I had problem comprehending trading in general. I tried watching other UA-cam trading channels, but they made the concepts more complicated. I was almost giving up until when i discovered content and explain everything in detail. The videos are easy to Follow*
Trading on a demo account can definitely feel similar to the real market, but there are some differences. It's important to remember that trading involves risks and it's normal to face looses sometimes. One piece of advice is to start small and gradually increase your investments as you gain more experience and confidence. It might also be helpful to seek guidance from experienced traders or do some research on different trading strategies
I will advise you should stop trading on your own if you keep losing.
If you can, then get a professional to trade for you i think that way your assets are more secure
I'd recommend JUDY, ARIANNA her profit is great even when there's a dip
The first step in every successful investment is to establish your goals and risk tolerance, a task best undertaken with the assistance of financial advisor.
Well said, Ben! Keep them coming!
In your opinion what is a better strategy, to buy an asset allocation ETF like XEQT or individual index funds and set allocations yourself, because we know those asset allocation ETFs are overweight in Canada ? Thank you.
Not a planner but there is no "better" strategy. Just whatever works for your situation and preferences. Asset allocation takes the hassle away of re-balancing yourself. Individual funds take more work to set your targets and rebalance yourself while coming with a slightly lower cost. However, it also allows for more room to tinker and tempt you into trying to time markets or stray from your original targets. Regarding overweight, Vanguard suggests 25-35% CAD weighting because of things like volatility and currency risk. Afterall, we use CAD $ to pay bills.
Great video! Thank you, as always, for sharing what you know and have learned.
I've also heard speculation that another reason for Buffett's early success was because markets then (50's and 60's) were a lot less efficient at sniffing out good value stocks. There was a lot more low hanging fruit.
Great as always
Another great video. Thanks for the lecture Mr Felix.
Hi Ben, thanks for the vid. I never have quite understood the rational of investing "outside" of the US as the S&P containing most of the largest companies in the world thus doing business across the planet. Should the American market falter, don't you think there would be enough outside business to keep the S&P outperforming? Other than India, I can't think of an emerging "stable" market that would out perform even a weak S&P ETF, over the long term. Thoughts?
Can you tell me what I'm getting wrong. My portfolio is up 400 percent this year. To me that seems like a far greater return than 20percent
So factor investing can beat total market ETFs?
What do you think of attempting factor investing using back testing tools like portfolio123 so find good metrics to use?
It is not just Buffett's scale that describes difficulty beating the market. That's part of it. The other part is being slow or pessimistic about new technology.
I hear a lot about using leverage from lifecycle investing to a leveraged 60/40 portfolio but I don’t hear how to effectively use it. It seems like berkshires ability to use leverage with factor investing seems to make it a solid choice. Is this line of thinking wrong?
This was a very good video I would really appreciate it if you could do your take on jim simmons
Renaissance Technologies Medallion Fund (Jim Simons)
ua-cam.com/video/hvUyuo53kQQ/v-deo.html
Does PWL beat the market? Because if not what is the point? Don’t mean to sound rude, I’m just confused
I'm pretty sure that most of their advisors will have clients hold a market portfolio with some factor tilt.
PWL is not trying to beat the market but rather provide financial planning to ensure financial goals are met, tax management and estate planning. They use funds from Dimensional, which are not available to the average Canadian investor, that are considered a market portfolio with a tilt towards small, value, profitability.
@Thank you for the answer. Merry Christmas!
Hey, Ben, i have to mention that your content is amazing. I also have a question regarding buying stocks: do think that if a person knows fundamental analysis, that person will have some capacity to detect a good stock that will increase in value over time?
Highly unlikely, in my opinion. Fundamental analysis is not a unique skill and does not give you an edge.
@BenFelixCSI Would you mind explaining why?
@@PC45433 Because there are vast numbers of people who are already doing this, which pushes your competitive advantage down to nearly zero.
Once you become big enough, you are the market.
Hi Ben, can I ask, if Berkshire invested in the factors you described, would they likely outperform the S&P500? (And themselves currently?)
Berkshire seemingly continues to invest in high quality businesses with resilient earnings potential but have left the size and value premiums behind possibly due to added work of manually selecting stocks.
If they had instead continued to isolate the factors that originally drove Buffet’s success, would they themselves be in a much better position today? (Of course at the cost of added risks!) Thank you! 🥰
To follow up, does this imply there is a clean correspondence of risk tolerance to ideal portfolio management? So for a given individual’s risk tolerance profile, there is a clearly defined mix of factor exposures with little to no headache as to what is optimal? Thanks again! ❤
Which basically means all that is left is to carefully define what a person’s risk tolerance will be over time along with a plan for the various outcomes that may happen as it unfolds?
What do you think of Terry Smith? He could be the next Buffet
No ...
Do you differentiate between active Funds that are stockpicking directly and the methodology of active Funds, that follow a certain ruleset (ae. things like avantis avwc try to tilt towards factor premiums, but are nevertheless relatively cheap active ETFs)?
Regarding Buffett's S&P 500 advices...
At a small scale, long S&P 500 makes sense. But at a large scale like BRK, long S&P 500 will likely just move the market with premiums in the orders, and will definitely incur a lot of unnecessary fee.
Great video as always.
Fantastic video once again
Now that these factors have been identified, and people are optimizing their investments for them, wouldn’t that drive up the price of companies that match the factors and therefore decrease their future performance?
Answer: You are not Warren Buffet.
Or Warren Buffett.
I think you missed the point. Anybody with $500 can buy BRK.B which essentially is just letting him do the investing for you. Why copy his portfolio when anybody can buy into it?
@@pastramikingthe question is whether BRK.B can be expected to continue outperforming the market. If its previous realized returns can be attributed to systematic factors, it would make more sense to invest that way than to hope that Buffet’s successors (or Buffet himself, if he could live forever) would duplicate that past performance going forward.
Also partial shares mean you wouldn’t need $500.
@@johnristheanswerhim too! ;)
@@pastramiking But that would require you to know ahead of time that Berkshire would outperform when not even Warren knows that
At what number do you start seeing diminishing returns? I’m sure it’s in billions. That is why this is the edge of retail investor. We can do whatever we want right or wrong but we have more options and freedom compared to any money manager. It’s much easier to beat S&P 500 and many do. As for your business, what’s the point of you can’t beat the market? Why would anyone use your services? Just curious.
Active managers have to be active. They have to do stuff. Reallocate the Stocks depending on percentage, or chase the Market if they were down one year, for example. If you don't have to chase anything, and you buy amazing companies when they are down and can wait... You should be able to beat the market long term... Or am I wrong.
Please make a video discussing the rapidly increasing US federal debt. Is there a "tipping point"? Is this something investors should be concerned about?
Stone Cold Ben Felix. Jk. I think, as you said repeatedly, Mr Buffet approves this message.
Thanks for the great content and this channel ! I would like to hear from you about the theory that we might be at a pivot point in a long term cycle : globally since 1918, world has been on more globalization and added exchange. Now we might be on the verge of a deglobalisation aka fragmentation in trade, like it happened from 1850 to 1914. This megatrend will certainly influence the stocks via the expected returns. So maybe a return in grace of the active managment ?
So, as small private investors, we should invest in (or at least tilt towards) cheap, safe, high-quality stocks, such as S&P SmallCap Value.
I came across an interesting observation once that highlighted that the number of portfolio managers that have outperformed their respective benchmark is actually less than the expected number that would have succeeded this feat due to chance alone. If anyone can point me to this paper/study, that would be greatly appreciated!
The five factor model gave an edge, when it was unknown to the wide audience.
Is it logical to assume, that now when it's open information, it's just became a part of the regular market returns without giving you any significant premium anymore?
In theory the factors in the model are risk premiums. Risk premiums will not be arbitraged away when they become known. Empirically, they decline post-publication, but are still persistent.
Ben, what do you think of owning 100% of your portfolio in VT, in the case that factor tilting isn't for me?
He says for Us investors that’s probably fine. He said a global market cap weighted portfolio is the most optimal “for most people” meaning people who don’t feel the need to factor tilt like you said.
@jpsantosss I agree. I think it is just me wanting to confirm it to Ben directly
@kenwen7791 he has a previous video called "my portfolio" or something like that where he shares it and has an equiv us version. I think he mentions doing a one fund portfolio as well in it.
@@kennywen3041 He mentioned in previous videos about factor investing that a simple index is absolutely fine for most investors.
I wonder if those index funds are unbetten largly because of the auto buying inertia of retirment portfolio. Investment managers might out perform again if that system brakes down.
Speaking of leverage, what about SPYM or SPYQ ETFs that are balanced monthly or quarterly instead of daily that majority of leveraged ETFs are. Doesn't that change things?
Great Video as Usual Ben. I am surprised and ashamed that the comments are full of disrespectful people. I am sorry for them and more for the parents growing/having such creatures. Thanks a lot.
Same as every video - I’m pretty used to it at this point!
Could you kindly cover the literature on geopolitical risk and asset classes, anything related that interests you?
Would you suggest investing on index funds while being retired?
Congrats on the promo.
Spot on as always
Ben, can you do a video about what to do you can't invest in low-cost index funds, which is essentially what happens for expats in the EU? The EU bans EU residents from buying US based ETFs and the IRS considers all foreign ETFs PFICs and treats them very punitively. Sometimes you have to pick a portfolio consisting of individual companies and it is annoying to only hear about SP500 index funds when you are restricted from doing that...
Can you buy index funds domiciled in Ireland?
Buy Berkshire Hathaway!
How would you suggest getting that little bit of leverage in your portfolio?
Borrow cash from the brokerage, pay interest and repay when you think the stock or fund you've selected has peaked and you can sell partially and repay the loan. Alternatively, take a personal loan from a bank or from wherever you can get cash at the lowest APR
To be honest even small cap value indexes run into a scale problem, and sometimes have to add small mid cap companies, because there is a limit to how much of a given company they can buy. Furthermore both small cap value funds and Warren Buffett (who has access to 1.7X low interest non-callable margin) are failing to outperform the S&P in the last decade or so. The Small Size and Value premiums have been taking a back seat to the large growth parts of the market.
Of course some analysts think that small cap value will shine when another crash occurs, and that small cap value will recover faster and stronger than the wider market. If this happens while Buffett is still in charge, I expect he will similarly out perform when the Size and Value premiums are generally favored by market conditions again. The AI and FAANG companies won't power market returns forever, eventually they will fall out of favor.
Guys time, will, and skill. Warren has all three most investors have none.
Warren Buffet can beat the market.
The problem is I’m not Warren Buffet.