Juggling Dynamite

Edward Luce of The Financial Times talked to Charlie Rose about his book “Time to Start Thinking: America in the Age of Descent”.

Bold new ideas and ethical leadership across all walks of society are needed to reignite innovation and strength in America and elsewhere. We have tried the quick-bucks-approach and that has been devastating. Time to stop paying financial wizards for magic tricks and get back to hard work, critical thought and individual responsibility. Fiat lux. You will need to go here to the site to find the clip.

Vice-chairman of Berkshire Hathaway Corporation Charlie Munger talks to CNBC about the need for creative destruction in business, value that can be found in failure, and the reckless trends in today’s capital markets and government. I appreciate most of what Munger says and I have always liked his candor.

I think it is important to note however, that when he and Buffett speak about how well Berkshire has done in terms of book value gains on their business portfolio, it must be acknowledged that Berkshire is a publicly traded company. The way that Berkshire investors have fared is reflected in the price action of its shares, including since this secular bear began in 2000. And on that count, Buffett and company have been struggling through a secular bear with the other long-always equity managers. The chart below is of Berkshire A shares, but it could easily be mistaken for a chart of the S&P (or the TSX).

After peaking with the credit bubble and the risk trade in 2007, Berkshire shares fell more than 50% to March 2009, before recovering and losing with the overall stock markets over the past 3 years. The bottom line is that investors in Berkshire are flat now for 5 years, and if they happened to join near the peaks in 2007, 2008 or 2011, they have lost money.

During the next bear market  (historically due any day now)  those who hold Berkshire shares, like those who hold other stocks, are likely to lose heavily once more.  Perhaps this is no trouble for Berkshire’s billionaire founders, but for the rest of the regular population, years of market loses and especially in one’s 50’s and older can be a life-altering event–not in a good way.

Which leads one to the elephant in the room that long-always advocates dare not address: what is the point of huge capital risk and volatility in order to earn flat to negative returns over years of holding? Who’s interests are passive asset allocations serving?

Danielle was a guest today with Phil Mackesy on Talk Digital Network discussing recent trends in global markets and the economy.  You can find the audio clip here.