Author: David Flynn, Chief Investment Strategist and Director.
Over the last few months Value as it is generally defined, has begun to outperform Growth as it is generally defined. Now don’t get me started on all the ways terms like Value and Growth get mis-represented by the market. That is not my purpose here. Also, I do not want to give the impression that Berkshire Hathaway is the best way to generate Value exposure right now but I do think we can all agree that Berkshire Hathaway was a great Value proxy during the ‘Tech Wreck’, which began 25 years ago.
They say history doesn’t repeat but that it does often rhyme. There are many reasons to think that the current period is very similar to the period leading up to the ‘Tech Wreck’, particularly in terms of Valuations, Retail speculative participation, and Leverage in the financial system. Also, like the amount of companies going public that generate zero profits. There are many ways you can look at it…..Here’s one; The image below shows the Buffett Indicator which compares the US Stock Market Value divided by US GDP. The Buffett Indicator is the ratio of total US stock market value divided by GDP. Named after Warren Buffett, who called the ratio “the best single measure of where valuations stand at any given moment”
From: https://www.currentmarketvaluation.com/models/buffett-indicator.php
So how did Value do during the ‘Teck Wreck’?
I’ve determined the ‘Tech Wreck’ as the period from what, at the time was the all-time high for the Nasdaq 100, in March 2000 and the bear market low for the Nasdaq 100 in October 2002. A period of roughly 18 months. The graph below shows percentage returns for Berkshire Hathaway B (BRKB) shares in purple and the Nasdaq 100 (QQQ) in blue. Berkshire Hathaway (Value) gained 27.62% during the period, while the Nasdaq 100 (Growth) lost 82.76%. Value outperformed so-called ‘Growth’ by 110.38% during the period.
Keep in mind that the performance differences shown during the period do not include dividends. If they did include dividends during the period. Berkshire Hathaway’s return during the period is closer to 40%. So the reality is that in total return terms, (because the Nasdaq 100 did not pay a dividend at the time), Berkshire Hathaway outperformed the Nasdaq 100 by over 120% during the period.
I’m not window dressing either. Berkshire Hathaway (BRKB) outperformed the Nasdaq 100 by more than 290% by the time to the top went in, in late 2007.
Most of you will be surprised by this for one of two reasons….Either you’re too young to remember it which means you most likely don’t believe in Value investing…..Or, you do remember it but you don’t remember enjoying decent returns during that 18 month period because most of your investment exposure (pensions, etc) was in the areas that got hurt the worst.
It is not going to be different this time. It never is!
For more information about how we are finding value in the current market, please read our most recent Quarterly Report, which you can find here;
Kind Regards,
David Flynn
Chief Investment Strategist and Director
Baggot Asset Management Limited t/a Baggot Investment Partners is regulated by the Central Bank of Ireland
CRO Number: 565467
Central Bank Ref: C143849
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