One of my dreams …..

Most traders or investors have heard of Warren Buffett chairman and CEO of Berkshire Hathaway. Buffett is a legend in the US with hundreds of articles, TV and documentaries spotlighting his strategies over the last 50 years.

There is no question of the performance of Buffett or Berkshire Hathaway, returning nearly 20% p.a. on average in book value increases since the 60’s. The only problem is that Berkshire Hathaway Type A  shares are trading at nearly US$258,000 each, which puts them in a league of there own.

If you could afford to buy BRK.A, there are no dividends, not one cent has been paid to shareholders – ever – so the only way to benefit from ownership is to sell your asset and lock in your gains.

In 1998, Berkshire Hathaway created a Class B share, the difference between Class A and Class B shares is twofold; 1 – the price, at listing in 1998 the BRK.A shares were trading at around US$78,000, the BRH.B shares listed at US$52.50 and 2 – Class B shares are non voting. They both benefit from the same management and performance.

Currently BRK.B shares trade around US$170, not cheap by Australian standards, but a pittance compared to BRK.A shares. BRK shares are managed very well but they are still at the mercy of the US sharemarket, during the GFC falling around 50% and during 2015 nearly 16%, this short term weakness has been easily eclipsed buy longer term performance.

So how can i gain access to BRK and limit the downside risk of normal market forces?

Vested equities have partnered up with Sequoia, the leader in structured products in Australia to create something very special. This product allows you to borrow the money for BRK.B using the value of the shares as collateral and receive a coupon payment each year based on the performance of BRK.B – the rate on the borrowing is approx 6.7% p.a. very competitive for investment loans – this is paid up front for 3 years so for around $11,000 AUD you get exposure to US$50,000 worth of BRK.B

With leveraged products (those that you borrow money for) have the tendency to allow you to lose more money than you put into the trade, not this one – the most that you can lose is the upfront cost (which is your interest and establishment costs) – this is achieved through a Limited Recourse Loan.

Given the average increase in book value of around 20% p.a (unleveraged), the return on a 100% leveraged BRK.B asset should be quite spectacular.

If you would like to invest directly with Warren Buffett’s Berkshire Hathaway, gain exposure to the strong US market feel free to contact me directly on for some more information and a copy of the PDS

Company Background

Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. The company wholly owns GEICO, BNSF Railway, Lubrizol, Fruit of the Loom, Helzberg Diamonds, FlightSafety International, Pampered Chef, and NetJets, and also owns a large holding in the Kraft Heinz Company, and significant minority holdings in American Express, The Coca-Cola Company, Wells Fargo, IBM and Apple . Since 2016, the company has acquired large holdings in the major US airline carriers and is currently the largest shareholder in United Airlines and Delta Air Lines and a top 3 shareholder in Southwest Airlines and American Airlines. Berkshire Hathaway has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 with dividends included for the same period), while employing large amounts of capital, and minimal debt. 

According to the Forbes Global 2000 list and formula, Berkshire Hathaway is the fourth largest public company in the world, and the 9th largest conglomerate by revenue. Berkshire is currently the 7th largest company in the S&P 500 Index by market capitalization and is famous for having the most expensive share price in the world.  (

Investing for Total Return

Over the last few years there has been a significant move towards investing into yield. This may be because of the lower interest rate environment we are in or perhaps its just my clients moving closer (as a group) towards retirement. Either way, it is a large shift from the pre-gfc investment environments.

So as an investor is it better to look for high yielding or high growth opportunities or would it be better to look at total returns?

In March 2009, which in hindsight was the bottom of the GFC. The ASX S&P200 (XJO) was trading at 3145. Currently it is trading at just under 5300 (this follows a recent fall from near 6000 in Mar15). Using a pure capital growth calculation it has regained an impressive 2155 points or provided an increase of 68% if you were lucky enough to have purchased at the bottom. Unfortunately if you bought at the top of the peak (6748 in 2007) you probably still have losses.xjo v xjoai

If you look at the same time frames on the Accumulation index XJOAI, which is the ASX S&P200 plus dividends reinvested. In March 2009 the XJOAI was 21298, its last price as 47385. This is a gain of 26087 or 122%.

The chart on the right shows a 10 year comparison between the 2 indices. The XJO after 6 years has failed to reach the highs of 2007, but the Accumulation index shows us a completely different result.

asx sectorThe companies listed on the ASX are predominantly made up of Banks (financials) and Miners (materials) combined they amass over 60%.

So for our market to rise in its current form we will need strength in these sectors. With current pricing in commodities we are unlikely to see another mining boom in the next few years, yet better value in commodities is more likely – and the banks are in a pattern of low growth. Considering these facts, unless the sector weight changes happen for our top index we may struggle to get back to the 6000 level where it found resistance earlier in 2015.

2015-11-18 16_38_19-Monitor 4

From the table above, you can see just a couple of stocks in the top 200. Both CBA and TLS have the highest yield but the overall return for 12 months is negative – Where the other 3, have a low or modest yield but the 1 year returns are very impressive.

So the moral to the story is, unless you are investing for pure yield (meaning you need the income to live off) you will always be better off trying to focus on total returns rather than just the dividend.

Diversify or Suffer the Consequences

In today’s global investment environment, equities, fixed interest or property from around the world is very accessible. bhp-rioThis means 2 things – some part of the world will always be performing better than another and any investment has a true diversified alternative.

bhp-anzDiversification is measured by the correlated move of 2 investments – for example if BHP changes its value (up or down) there is a high probability that RIO will move in the same direction. So the 2 investments do not offer much diversification, they may vary a little but from the chart to the right similar issues will effect both companies.

A lower correlation would occur between BHP and ANZ being from different market sectors, but still the same fate may be born if the Australian share market is struggling.

A lower still correlation may be obtained with BHP and Microsoft.

An even lower still correlation may be obtained with BHP and Government Bonds or BHP and Property. Both of which have an extremely low correlation of a similar move.

So why is this important? — The object of diversification is to create a robust investment strategy that will not collapse if the wind is blowing  the wrong way. The more assets you have in your investment portfolio that are moving in different directions the safer and more robust your investments will be. This doesn’t necessarily lead to a lower return, especially with the correct rotations and reweighting, but it does lead to safer investments.




Moving On

After being with the Sharemarket College for the last 8 years, I have decided to move on.

I have started with Octa Phillip Financial Group, they have offices all over Australia. A great bunch of people with loads more resources and facilities. Take a look at their website at

I wish to thank all the clients for their support and hope that they continue to learn what they need to make more informed trading decisions.

I would love to keep in contact, feel free to give me a call on 0402 855 800 or send me an email on

May all your trades be profitable.