Best investment manager Richard Losch's Blog

Passive Investing

The trend to passive investing (investing in an index funds or ETFs based on an index such as the S&P 500) has accelerated in the last to few years to the point where we have to wonder how much longer this trend can go on. Last year, American investors plowed a record $504.8 billion into passive funds, while pulling $264 billion out of actively managed funds focusing on US companies.

First Quarter Letter: Economic Cycles, Hindsight Bias, Effect of Tax CUT on Berkshire

Successful investing is about the long term. In the market, patience trumps genius. The best investment philosophy understands the cyclical nature of our economy, using these cycles rather than getting used by them.

Current Market Comment

The FED indicates it might raise interest rates three time in 2017 and Mr. Market gets upset. Eventually the market will decline (it always has), but when, and from what point?

Global Plastics Summit Highlights

The Global Plastics Summit was produced by IHS and presented in Chicago at the Radisson Blue from September 27 to September 30, 2016. After declining for the last thirty years, the domestic petrochemical industry is experiencing new life thanks to the shale revolution. This turn-around is in its early innings - low gas prices and long-term recovery of crude oil will put this country in a very strong competitive position relative to Asia and Europe in many basic chemicals.

Value Investing vs Index Investing

The real value of a company today is measured by its potential for further cash flows, and the task of the value investor is to make as intelligent an estimate as possible of those future cash flows.

Index Investing is not always a bad idea, but while following the crowd can yield positive short term results, it will almost always lead to poor long term results.

How to Play an Index Bubble

With the S&P 500 trading at 17.2 times forward earning and the CAPE (Shiller PE ratio) over 27 times earnings the market is clearly overvalued by historical standards.

Successful Investors

In his 2014 publication, "Excess Returns: A Comparative Study of the Methods of the World’s Greatest Investors", Frederik Vanhaverbeke condenses extensive data from the field and attempts to draw some general conclusions regarding investment success.

Is the Market Overvalued?

The FED indicates it might raise interest rates a quarter point and Mr. Market gets depressed. We have been living with these abnormally low rates for so long that investors seem to have lost perspective. Realistically, it is going to take a lot more than a quarter percent raise from here to have any impact our economy. In 2008, the FED had to raise rates to 5.50% before the economy started to cool. In 2000, rates got to 6.75% before the tech bubble popped. The 1990, recession was preceded by rates of over 10%, and the granddaddy of all bubble poppers was Volker’s 1981 peak of 22.5%.

What’s Next for the Market

The FED indicates it might raise interest rates a quarter point and Mr. Market gets depressed. We have seen these abnormally low rates for so long that investors seem to have lost perspective.

Operating Earnings

Operating earnings from Berkshire’s wholly owned operating companies grew from $4.0 billion in 2006 to $18.9 billion in 2015. The CAGR for the last five years was 13.23 %, and 16.85 % for the last ten years.

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