Terry Smith says investing for income useless

[jackdaww]

Whatever the merits of the argument re individual shares and when they were bought, I am happy to get exposure to this type of share through say Scottish Mortgage which I think is a pretty much instant portfolio of the sort of shares usually known as 'Growth'.

Dod

scottish mortgage looks interesting - thanks.

[Dod101]

I quite like the 30 to 40 Investment Trusts included with the FT250 as they diversify widely and globally. Assuming a average of 10 assets each that adds 300 to 400 diversity, so the 250 holdings in the index might be more like 500+. It also helps reduce domestic concentration down to around 50%.

Most investment trusts will have a lot more than10 assets each (surely that is not what you meant?) and in any case there will be a lot of duplication because nearly all income trusts for instance will hold the same suspects with just slightly different allocations and even more esoteric trusts often hold income stocks in order to protect their dividend.

Dod

[Quint]

I've a lot of time for Terry Smith, and his Fundsmith fund has been a stellar performer. He makes some interesting points regarding the merits of income funds - http://citywire.co.uk/money/terry-smith ... r/a1097563

Of course the bull market is bound to favour his strategy over that of an income fund. It will be interesting to see how he fares if, as appears possible, that bull market has finally hit the buffers.

I have just read this article and he actually uses the word mistake not useless.

However me and the Mrs both hold fundsmith as part of our portfolio. Happy so far.

[Lootman]

if you get a company that consistently increases its dividend like say Imperial Brands I feel sure that its price must move upwards again before long otherwise we will get the absurd position of a yield of 10% or more for a company that is consistently increasing its dividend.

I'm not sure that Smith would disagree with that. But rather he would say why not widen the net and include all companies that are increasing their earnings at 10% a year, regardless of whether they use those earnings to pay dividends, buy back shares or reinvest in the business?

[Gengulphus]

You give the company your money, they pay it back to you, and the government tales 7.5%. Rather you than me.

The first part of that is usually not true, because I normally pay the previous owner of the shares for them, not the company - so the company, not having received any payment from me, cannot possibly pay me anything back. And the last part is often not true either - it isn't for shares in my ISAs and SIPP, for dividends within my personal allowance or 'dividend allowance', or for dividends I use for Gift Aided donations to charity. (That last is an approximation, the true situation being complicated by the fact that Gift Aided donations to charity assume the normal 20% basic rate of Income Tax, whereas that basic rate on dividend income is 7.5%. I won't go into further detail about that here - if anyone does want to know that detail, ask on the Taxes board.)

But there are occasional cases in which it is all true, specifically when I take up my rights / entitlements in a rights issue / open offer, for holdings held outside a tax shelter and whose dividends don't benefit from any other tax freedom. It's a pretty small effect - 7.5% of say a 5% dividend is 0.375% of the sum I invested - and there is a chance that it will be mitigated by a future CGT saving. But such as it is, I agree it's unwelcome, and I am generally inclined to regard the directors of companies that have a rights issue and continue to pay dividends through them as not really facing up to reality, a distinctly negative quality in the managers of an investment! ("Generally inclined" rather than always regarding them that way because there may be other aspects of facing up to reality involved. In particular, the reality about dividend cuts is that for companies with an established record of paying good dividends regularly, a sizable population of their shareholders will regard a cut as a major blemish on the company's record, regardless of the actual merits of regarding it that way. So if the reason for a rights issue or open offer is a purely 'good news' one, e.g. to take advantage of an unexpected opportunity, there is IMHO a decent facing-up-to-reality argument for keeping the dividends going to counter my general inclination to regard doing so as not facing up to reality. But if there is any significant 'bad news' involved, I think it better to be decisive and get it all dealt with...)

So yes, your argument holds water IMHO - but only a small amount of it and on fairly rare occasions.

We can obtain performance data for the FTSE350 Lower Yield Index (LIX) and the FTSE 350 Lower Yield Index (LIX), over the past 15, years from This is Money:

http://investing.thisismoney.co.uk/char ... AY1&type=2

As a cautionary note about taking secondary data sources at face value, that chart (or to be precise, the one obtained from what you first get by clicking on the "15 years" button) is actually much closer to being a 12-year chart than a 15-year one!

Much of that is visible on the chart - its first data point is clearly at the 2005 position on the horizontal axis, not 2003. Which might suggest it's a 13-year chart, but I've checked the exact figures LIX=2162.8, HIX=3588.8 for that first data point against an extensive (though unfortunately not fully comprehensive) file of FTSE index values I've collected. They match the values for the last trading day of 2005, which was 30/12/2005. That's 12 years and 62 days before last Friday, the final data point, or a bit short of 12.2 years.

During these 15 years, LIX has risen from 2162.8 to 3940.93, i.e. by a factor of 3940.93 / 2162.8 = 1.822.

HIX has risen from 3588.8 to 3585.15, i.e by a factor of 3585.15 / 3588.8 = 0.9990.

This is a relative rise of 1.822 / 0.9990 = 1.824.

On an annualised basis, this is 1.824 ^ (1/15) = 1.041, i.e. the LIX has outperformed HIX by 4.1% pa over the last 15 years, in capital terms.

Or rather more accurately, given the actual period of about 12.2 years, 1.824 * (1/12.2) = 1.0505, so outperformance by about 5.05% pa over the last ~12.2 years.

Which seems to strengthen your conclusions. But what happens if we go further back? The earliest values I have on file for the two indices are LIX=1435.62, HIX=1343.87 on 31/12/1992. I know where I obtained them, by the way: https://markets.ft.com/data/indices/tea ... s=FTLY:FSI and https://markets.ft.com/data/indices/tea ... s=FTHY:FSI, by clicking on their "Charts" tabs and making use of the facilities provided there to alter the date range covered and to read off exact data points. Unfortunately, the 'Charts' tab is one of the facilities the FT have since restricted to subscribers only... However, one can still get charts going that far back with some effort (but not an enormous amount) by clicking on the "5Y" button above the chart on the default "Summary" tab to get a five-year chart, then click-and-dragging it sideways several times to move the 5-year period covered back to one covering 1992. That won't allow the exact values to be checked, but does allow you to check that they're correct to within eyeballing-a-chart accuracy.

Repeating your calculation for the period of about 25.2 years that produces:

LIX has risen from 1435.62 to 3940.93, i.e. by a factor of 3940.93/1435.62 = 2.7451.

HIX has risen from 1343.87 to 3585.15, i.e. by a factor of 3585.15/1343.87 = 2.6678.

That is a relative rise of 2.7451/2.6678 = 1.0290, or an annualised basis, 1.0290 ^ (1/25.2) = 1.0011. I.e. capital-only outperformance by LIX of about 0.11% pa over the last ~25.2 years.

And I can also do a similar calculation for the first 13 of those years, which is of some interest because it has a similar length to the 12.2-year period and there's no overlap in the data it's derived from. I won't bore people with the exact divisions, etc, but its result is that HIX outperformed LIX on capital by about 4.49% over those 13 years.

We can obtain the current yields from Stockopedia:

https://www.stockopedia.com/index-price ... -FTSE:LIX/

https://www.stockopedia.com/index-price ... -FTSE:HIX/

The current LIX yield is 2.2%, and the current HIX yield is 4.8%, a difference of 2.7%. It looks as though LIX has been the winner over the past 15 years. ...

Agreed with that, apart from "15 years" really being ~12.2 years. Equally, though, it's very clear that HIX was the winner over the previous 13 years, and looks as though HIX was the overall winner over the ~25.2 years.

One more look I've taken at the data I've got is to look at what has happened to the HIX/LIX ratio over the 25.2 years it covers, in chart form. The data concerned is fairly (not fully) comprehensive for most of the period, the exception being about the last 1.5 years when I have nothing on file other than the figures for last Friday in this thread - this is the result of the FT having restricted non-subscriber access to their data, as described above, coupled with me having had quite a few higher-priority things to sort out over the last 1.5 years.

A broad-outline description of the chart, which basically shows capital outperformance of HIX when it is rising and of LIX when it is falling:

* Fairly flat, meandering rather aimlessly in a range of about 0.9-1.1 from the end of 1992 to near the end of 1998.
* Small spike down to slightly above 0.8 near the start of 1999, followed by recovery to about 1.0 for mid 1999, followed by a bigger spike down to about 0.65 in Q1 2000.
* Steep rise to about 1.75 in mid 2002.
* Back to meandering somewhat aimlessly until mid 2005, this time in a range of about 1.6-1.75.
* Fairly steep fall to around 1.25 in mid 2008.
* Spike up to just above 1.6 near the end of 2008, dropping back to about 1.25 in Q1 2009.
* More gradual decline to about 0.9 now, in Q1 2018. (With the caveat that I might of course be missing a significant spike or other short-term change in the last 1.5 years of that ~9-year period.)

This seems quite typical of stockmarket capital performance data to me - it's often fairly consistent for long periods, but then changes fairly abruptly to something very noticeably different. And it's pretty hard to predict when such a change will happen... The changes do seem to be associated with major changes in how the market is behaving overall - e.g. I'd be surprised if the current ~9-year-long slow decline in the HIX/LIX ratio weren't related to the current ~9-year-long bull market (high-level picture - I know it's been interrupted by various 'corrections', some of which are probably a bit bigger than many investors would be entirely happy with regarding as just 'corrections'...).

My conclusions from all of this:

* Based on an admittedly very small sample of just two such non-overlapping periods, past ~12.5-year periods seem to give far too variable a picture of long-term HIX vs LIX performance for them to be treated as a good guide as to what to expect in the future.

* Predictions based on the idea that the most recent such period's relative performance of HIX and LIX will continue seems to me to be about as safe as predictions that the current bull market will continue - i.e. not very safe at all!

* Can the one ~25-year period I've got data for be expected to give a sufficiently better picture of long-term HIX vs LIX performance? I very much doubt it - I of course have no actual data about how variable the pictures given by non-overlapping ~25-year periods are, but general statistical arguments say that it would require the pictures given by successive ~12.5-year periods to be quite strongly negatively correlated with each other to have a reasonable chance of making the variability of the pictures given by ~25-year periods sufficiently small.

* Based on the same sort of general statistical arguments, I don't really think that anything short of periods a century or two in length stand a reasonable hope of giving a sufficiently good picture - and I'd prefer a millennium or two!

* Short of major medical developments in the area of extending lifespans and society accepting the use in practice of those developments, I therefore see no realistic chance that I'll get convincing real-life data within my lifetime settling the question of which of high-yield and low-yield shares can be expected to deliver better total-return performance in the long term.

* Furthermore, I don't actually see any realistic chance of getting such data that is merely convincing enough to merit a calculated gamble on the answer. That is of course based on my personal view of how convincing data need to be to justify a calculated gamble, so I certainly don't expect everyone to agree with me!

In short, I don't see anything that to me justifies taking an investment-returns view on whether high-yield or low-yield shares are better in general. So my actual decisions are based on my company-specific views (though I don't trust them much either, based on experience!) and on the differences between high-yield and low-yield shares with regard to practical details - which are generally small but undoubtedly do exist. E.g. there's an assertion in this thread that paying dividends and buying back shares on the market are the same - which is true enough theoretically, but blatantly untrue as regards the practical details: to name just a couple of those practical details, paying dividends results in cash landing in my bank or broker account while share buybacks don't, and the two have different tax treatments for shares held outside a tax shelter.

For my particular circumstances and preferences, those practical differences generally favour dividend payments. For example, share buybacks are better on the first of those differences if one would have used the cash to top up the holding concerned, effectively not requiring one to make any extra trading decisions or pay any extra trading costs to achieve what one wants to do. Dividend payments are better if one wants to do anything else with it - use it for living expenses, give it to family or charity, buy a new holding, top up a different holding, pay tax, etc - because they don't involve any extra trading decisions or costs above and beyond what those uses require anyway. For me personally, that favours dividend payments - wanting to use the cash to top up the holding concerned happens, but it's definitely a minority of the uses I make.

On the second difference, namely tax, the financial differences are mixed - 10% basic-rate CGT is higher than 7.5% Income Tax on dividends, but that comparison reverses to 20% vs 32.5% at higher rate. In principle, it's also affected by the question of making good use of one's CGT and dividend allowances; for me personally, it basically isn't, because I can generally make good use of both. Though there is the difference that making good use of the dividend allowance happens without trying, whereas making good use of the CGT allowance requires the non-financial costs of less-than-entirely-straightforward capital gain/loss calculations around this time of year and taking care that routine top-ups of my holdings don't invalidate those calculations (that's a particular danger in the first 30 days of next tax year).

There are some other practical differences besides those two. I won't try to produce a comprehensive list, but like those two, they're all small stuff, with the non-financial differences such as the use of my time (especially on activities that I find thoroughly tedious) actually being somewhat more important to me than the financial differences. But in the absence of clearly seeing non-small-stuff investment-returns differences, I might as well pay attention to them...

Other people's mileage is clearly likely to differ on such matters!

Gengulphus

[Gengulphus]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

No, I don't. I haven't ever been in any of Apple, Google, Amazon or FaceBook, and I have handsomely beaten the S&P 500 over the last ~20 years. That's the result of mere billions of market cap accretion, not trillions, so I have no need to explain where I got trillions!

If you want a clue why not, one's investment success depends on the factor by which the market cap of one's investments is multiplied, not the amount that is added to their market cap. An increase from £10m to £1b market cap is just as good as an increase from $10b to $1t.

I will add that that I'm not making that as a point in favour of high-yield shares - the shares concerned were definitely not high-yield! Just as one against the too-blinkered idea that companies like Apple, Google, Amazon and FaceBook are in any way essential to outstanding investment success.

Gengulphus

[StepOne]

Your problem then was not that you bought the wrong share (you clearly did not) but rather that you made a short-term and emotional reaction to a setback and sold at the bottom. I was not advocating market timing at all. Quite the opposite in fact.

This is the problem though, Lootman. Most private investors do not hold on to multi-bagging shares like Amazon etc. They watch them double, triple or whatever, then sell them, then curse the fact they sold them, then buy them back at some high point, then panic and sell on a ten percent dip, then watch them soar again.

So the arguments about higher return from theoretical buy and hold forever shares is pointless - the argument should be about ACTUAL returns achieved by the average investor, which get eaten away by over-trading. That is why, for most people, the best return will be achieved by investing in large high-yielders, re-investing the dividends, and waiting a decade or three.

Cheers,
StepOne

[Gengulphus]

Yield may not be sufficient, but it is certainly necessary, for inclusion on this [the HYP] board.

No, no, that is not true. Shares that had a high yield at some point in the past also count as HYP shares. If you buy a share, you must hang on to it until you die, according one sect (or perhaps several) on the HYP board.

To confuse matters further, this is not the HYP ("High Yield Portfolios (HYP) - Practical") board. Rather it is "High Yield Shares & Strategies - general".

And yet further, I'm not aware of even one poster on the HYP board who has posted to say something as extreme as that if you buy a share, you must hang on to it until you die. Let alone an entire 'sect' of them!

Apart from anything else, it's obviously an impossible principle to follow in practice, given the various ways in which the decision can be taken out of one's hands, such as takeovers, bankruptcy, divorce settlements, losing mental capacity and so having the decisions taken by someone else, etc, unless one happens to avoid any of those happening in one's lifetime - which is pretty unlikely for takeovers in particular unless one's HYP is especially small and/or one's remaining lifetime especially short.

So as far as I'm concerned, it's a classic example of a 'straw man' argument - loosely based on things people have said, but exaggerated way beyond what they've said to make it easy to knock down, or indeed fall over by itself as a result of being totally ridiculous.

Gengulphus

[GeoffF100]

And yet further, I'm not aware of even one poster on the HYP board who has posted to say something as extreme as that if you buy a share, you must hang on to it until you die. Let alone an entire 'sect' of them!

I was poking a little fun there, taking what has sometimes been said rather more literally than it was intended. That extreme sect may indeed not have any members. For what it is worth, I believe that minimising trading is a sounder idea than restricting yourself to high yielding shares.

Thank you for spotting my error with the duration of the LIX/HIX chart. I do not really believe that any sound conclusions can be drawn from this analysis, apart from the fact that HIX outperformed for a while, and the LIX then outperformed for a similar period. As I have said, when a class of shares outperforms, people buy more of it, which pushes the price up, often enough to make it under-perform after that. As I have also said, the recent exodus form high yield funds, may well signal an improvement in the performance of higher yielding shares, but nobody knows for sure.

[Breelander]

And yet further, I'm not aware of even one poster on the HYP board who has posted to say something as extreme as that if you buy a share, you must hang on to it until you die. Let alone an entire 'sect' of them!

I was poking a little fun there, taking what has sometimes been said rather more literally than it was intended. That extreme sect may indeed not have any members...

I'm sometimes accused of being in that 'sect', but even I will sell in exceptional circumstances. The last time being selling Carillion (luckily) days before it was suspended.
viewtopic.php?f=15&t=6766&p=109863&hilit=bree+carillion#p109888

[GeoffF100]

I confess to being in a mild version of the "never tinker" sect. Mostly, I do not even look at the data or news for the shares that I hold. There are far too many of them. I never sell shares solely because bad news has emerged. The bad news is likely to already be in the new lower price. However, I do give my largest holdings annual hair cuts to preserve my diversification and fill my CGT allowance. I also sometimes sell shares in companies that are about to be taken over by an overseas company, to avoid paying FX costs when I sell them later on. Occasionally, other exceptional circumstances arise. When I buy shares, I tend to use criteria like "the largest company in the sector" rather than make judgement calls.

[tjh290633]

This is the problem though, Lootman. Most private investors do not hold on to multi-bagging shares like Amazon etc. They watch them double, triple or whatever, then sell them, then curse the fact they sold them, then buy them back at some high point, then panic and sell on a ten percent dip, then watch them soar again.

So the arguments about higher return from theoretical buy and hold forever shares is pointless - the argument should be about ACTUAL returns achieved by the average investor, which get eaten away by over-trading. That is why, for most people, the best return will be achieved by investing in large high-yielders, re-investing the dividends, and waiting a decade or three.

Cheers,
StepOne

There is also my approach, which is to trim my holding back, whenever it passes a certain multiple of the median holding value. In the past that multiple has been 10% of the portfolio value, twice the median holding value, and currently 1.5 times the median holding value.

A share which does rise dramatically will undergo several trimming actions, the cash released being used to buy more shares in other holdings, with a higher yield than that being trimmed, thus increasing the dividend income.

A typical example is the now Imperial Group, originally Imperial Tobacco, demerged from Hanson on 1st October 1996 at 375p. I added to the original holding to bring it up to median weight, the original yield being 5.7%. Come April 2002, there was a rights issue, and I sold the rights rather than take them up, as to do so would have taken them past my trigger point at the then price of 974p. In June 2002 that trigger point was reached at 1083p, and 20% were sold. In March 2003 they had again passed my trigger point at 986p, the market having sunk back by then, and a further 20% of the remaining holding was sold. Then we move on to March 2007, when the holding was trimmed by 20% at 2323p, and again in January 2008 when 25% was sold at 2669p. A further rights issue in June 2008 was sold, the price then being 2043p. In 2013 I was able to top up the holding again, adding about 20% in July at 2278p and in August 2233p, the holding having become underweight. By February 2016 the holding had again breached my trigger point at 3579p, and 25% was sold. Subsequently the share fell relative to the market and I topped up about 20% in October 2017 at 3130p and again in February 2018 at 2641p. So it has been a 10-bagger at one time. I currently hold about 60% of the highest number of shares, held at the date of the 2002 rights issue. The current yield is 6.6% and IMB ranks second to NG. for topping up again.

This illustrates how a share can become in favour and then go out of favour, several times over the years.

TJH

[Howard]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

Warren Buffett hasn’t invested in any of those companies for the last 10/20 years.

Wouldn’t you agree that he has quite a good track record in “market cap accretion”?

I assume you agree Buffett has a good process because you say you hold Berkshire Hathaway shares. Why did you buy them, unless you believed that Warren Buffett could beat the indices without “owning Apple, Google, Amazon and FaceBook for the last 10/20 years”?

These views seem completely contradictory.

Warren Buffett did recently admit that his funds would have performed even better if he’d had shares like Google. And, of course he has relatively recently purchased Apple. But I believe he admitted that he’d missed perhaps the best years of their growth.

Like Gengulphus, I have beaten the S&P 500 index over many years. I claim no skill in this but put it down to having a well diversified portfolio including dividend paying shares which have performed very well along with some high growth companies.

So, I’d argue that it is worth investing in income producing shares as Warren Buffett has done, but I wouldn’t exclude investments in riskier high-growth companies as well.

regards

Howard

[Lootman]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

No, I don't. I haven't ever been in any of Apple, Google, Amazon or FaceBook, and I have handsomely beaten the S&P 500 over the last ~20 years. That's the result of mere billions of market cap accretion, not trillions, so I have no need to explain where I got trillions!

If you want a clue why not, one's investment success depends on the factor by which the market cap of one's investments is multiplied, not the amount that is added to their market cap. An increase from £10m to £1b market cap is just as good as an increase from $10b to $1t.

I will add that that I'm not making that as a point in favour of high-yield shares - the shares concerned were definitely not high-yield! Just as one against the too-blinkered idea that companies like Apple, Google, Amazon and FaceBook are in any way essential to outstanding investment success.

You misunderstood me. I never suggested that it was impossible for an investor to beat the S&P 500 without investing in those four shares. Rather that, given the market cap accretion that they enjoyed, you would have had to be very lucky to have done so.

An an example. my Fevertree shares have done better over the last 3 years. Although of course, that said, they have zero yield

[Lootman]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

Warren Buffett hasn’t invested in any of those companies for the last 10/20 years. Wouldn’t you agree that he has quite a good track record in “market cap accretion”?

I assume you agree Buffett has a good process because you say you hold Berkshire Hathaway shares. Why did you buy them, unless you believed that Warren Buffett could beat the indices without “owning Apple, Google, Amazon and FaceBook for the last 10/20 years”?

These views seem completely contradictory.

Not contradictory at all. BRK doesn't pay a dividend. Nor does GOOG, AMZN or FB. They all share the charactisation of both out-performing the market and having no yield, which was I believe Smith's point.

[kempiejon]

my Fevertree shares have done better over the last 3 years. Although of course, that said, they have zero yield

You must have different Fevertree (FEVR) shares to me as mine have paid dividends for a few years.
I think it was 3p then 7p that is 0.003 yield.

[Lootman]

my Fevertree shares have done better over the last 3 years. Although of course, that said, they have zero yield

You must have different Fevertree (FEVR) shares to me as mine have paid dividends for a few years.
I think it was 3p then 7p that is 0.003 yield.

Ha ha, you may be correct about that. But that's hardly an income share though, is it?

[Howard]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

Warren Buffett hasn’t invested in any of those companies for the last 10/20 years. Wouldn’t you agree that he has quite a good track record in “market cap accretion”?

I assume you agree Buffett has a good process because you say you hold Berkshire Hathaway shares. Why did you buy them, unless you believed that Warren Buffett could beat the indices without “owning Apple, Google, Amazon and FaceBook for the last 10/20 years”?

These views seem completely contradictory.

Not contradictory at all. BRK doesn't pay a dividend. Nor does GOOG, AMZN or FB. They all share the charactisation of both out-performing the market and having no yield, which was I believe Smith's point.

You may not realise this but at the moment it could be argued you are holding accumulation shares in an income fund. Berkshire Hathaway is holding your income for you!

Berkshire Hathaway had $116 billion in cash and short-term T bills at the end of 2017. This was over 11% of assets held. Warren Buffett has been investing in income in recent times. And this is in addition to his (income producing) holdings in dividend paying stocks.

Hopefully you understand that the fact that Warren Buffett isn’t paying income to you, doesn’t mean that you are not invested in income producing assets.

This indicates that Warren Buffett doesn’t necessarily agree with Terry Smith.

However they may both be right!

regards

Howard

[Lootman]

Hopefully you understand that the fact that Warren Buffett isn’t paying income to you, doesn’t mean that you are not invested in income producing assets.

This indicates that Warren Buffett doesn’t necessarily agree with Terry Smit

WB loves cashflows. Never said otherwise.

The idea for many investors in BRK is that WB can do a better job of managing their cash then they can, so why create avoidable tax events in that case? BRK is in a sense a fund that doesn't have the tax disadvantages of a fund (which are more negative in the US than here since funds there have to pay out realised gains annually as well as dividends).

[Gengulphus]

If you haven't owned Apple, Google, Amazon and FaceBook for the last 10/20 years AND yet you claim to have matched or beaten the S&P 500 then you need to explain where you got that 2 trillion in market cap accretion.

No, I don't. I haven't ever been in any of Apple, Google, Amazon or FaceBook, and I have handsomely beaten the S&P 500 over the last ~20 years. That's the result of mere billions of market cap accretion, not trillions, so I have no need to explain where I got trillions!

If you want a clue why not, one's investment success depends on the factor by which the market cap of one's investments is multiplied, not the amount that is added to their market cap. An increase from £10m to £1b market cap is just as good as an increase from $10b to $1t.

I will add that that I'm not making that as a point in favour of high-yield shares - the shares concerned were definitely not high-yield! Just as one against the too-blinkered idea that companies like Apple, Google, Amazon and FaceBook are in any way essential to outstanding investment success.

You misunderstood me. I never suggested that it was impossible for an investor to beat the S&P 500 without investing in those four shares. Rather that, given the market cap accretion that they enjoyed, you would have had to be very lucky to have done so.

No, I didn't misunderstand you. I knew perfectly well what you'd said, as quoted. I agree that you didn't suggest that it was impossible for an investor to beat the S&P 500 without investing in those four shares. But you did say (not just suggest) that those who did so need to explain where they got 2 trillion in market capitalisation. I did so, and I don't need to do any such thing - and indeed if I did need to, I would be utterly incapable of doing so because I quite simply didn't get 2 trillion of market capitalisation.

In short, you made an untenable statement, and now that I've called you on it, you're trying to wriggle out of it by claiming that I'm responding to something other than what you did actually say.

Gengulphus