Over the last ten years, Berkshire kept pace with the S&P500 until 2019. Since then the market has pulled away. The market outperformance is completely within the last 18 months.
The market has gotten demonstrably more expensive, while Berkshire has remained relatively cheap. The valuation difference currently is striking. Berkshire has seldom ever been this cheap. The market has seldom ever been this expensive.
What does this mean? Well, there’s no telling when balance might be restored, if ever. I’ve placed my bet - got way more money on Berkshire. Let’s revisit in a couple of years.
Good bet. I also opened my position on BRK. The stock seems to be unwanted and there is too much noise around Buffet's assumed lost vision and skills. People forget that BRK is a value play whilst S&P 500 is driven by growth stocks.
In terms of valuations, my take is that market is NOT overvalued in absolute terms. Maybe overvalued relative to historical norms, however due to low interest rates (10 yrs US treasury is 1%) the S&P 500 at 3,000 gives you an equity risk premium of 4% to 4.5% which is in line with historical averages.
The long term growth is still intact.
However, I do not exclude a crash in the next few months as investor's sentiment changes quickly due to current situation of the economy and development of COVID-19. If it happens, then you may be a happy investor locking equity risk premiums of even above 6% if you buy during the crash.