patrick.net

They really need to build condos better. Most of them are wooden structures with bad insulation (heat and sound). Higher density is the future.

This condo is quite nice though... ;)

http://mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=509495&type=property&name=

All people in CA are guilty of giving 8% of taxable income to the state of CA, well above inflation and the nominal rate of return of throwing darts and the WSJ, market index funds, over time.

True. But CA has good sushi.

Could you please show us your calculation?

The costs dependent on the purchase price are:

1) financing cost (interest) = 6.75%
2) property tax = 1.25%

Total = 8%

8% of $15000 is $100.

In other words, payment being the same, each $100 reduction in HOA increases your "affordability" by about 15K.

One note: The actual amount is slightly less because the principal part is also proportional to the purchase price.

Oh, the thing with the rents, I am form the east coast, but my logic works anywhere in a bubble area. I believe that people are so stretched financially that they are trying very hard to get someone in the door at a higher rent because they know that they aren't going to make it if they don't due to a higher cost of living (higher energy and food prices/adjusting ARM's, etc.). What surfer is saying is true, the asking rent prices and the rent prices they are ABLE to get are two different things. Do you see lack of rental apartments? Alot of these people are caught between a rock and a hard place! They KNOW that they MUST get the higher rent price to keep a positive or at least not negative cash flow and at the same time they know it will take longer (if not forever) to find a renter at their high asking price, but they are wishful thinkers, because they won't be able to get it. They are trying desperately to fight the laws of supply and demand!

I rent a 6BR 4BA 1960's McMansion in West San Jose for $2800. My landlord told me they got $4500 for the house in 1999, but it wasn't worth the trouble. Folks who pay $4500 rent expect $4500 worth of repairs and upkeep.
That's very time- and money-consuming with an aging house.

I do minor repairs and improvements myself. I've put a laminate floor into the living room to replace the aging carpet, replaced the garage door opener, planted stuff in the backyard etc.
I have enough space for my big family, keep my freedom and save quite a bit of money vs. buying. Half of the savings go into sending my kids to private school, and the other half goes into the good old ETRADE account. I bike to work 2-3 days a week because it's close enough, keeping the belly from flapping over the belt too much. Life is good.

Speaking of freedom: Realistically, I'd even pay a small premium for keeping my freedom and not having the risks of owning a house of that size. The fact that I get a $2500+ *discount* over owning a similar place that allows me to give my kids a good education gives me the warm fuzzies.

John Haverty: check out the other Excel model on Randy's web site. It's much simpler since it avoids all the abstract concepts and just tries to calculate where the money goes month by month for the next 50 years for both renting vs. owning, and allows you to choose and tweak various scenarios for the future.
It helped me get a good feel for how a "good time to buy" scenario could look, and reinforced in my mind the importance of saving as much money as possible.
In a few not-too-implausible scenarios, it projects me to be able to buy a modest house in cash in much less than 30 years. I suspect I might not want to buy one even then since sinking all that good appreciating investment money into a depreciating, risky and illiquid asset won't seem like a such a good idea at that point. :-)

John Haverty,

I was sort of joking. No need to go after me as a "newsletter pusher". I don't have any. I am not even an investment professional, and do not offer any specific portfolio advice to anyone for compensation. I have helped hedge funds with quant macro models from a software perspective, but I don't invest that way because I'm not smart enough and don't have enough supercomputers. I mainly help advise startups in strategy and financial structure and planning when I'm doing finance sort of things. My primary expertise in this regard is valuation. That's why I said I know quite a lot about valuation, including the classic Warren Buffet style. I actually follow a more contemporary Greenwald approach, which is closer to what BRKA implements in its acquisition strategy.

In other words, payment being the same, each $100 reduction in HOA increases your “affordability” by about 15K.

Lower HOA fees could increase your affordability by even more if your present value of "premium" isn't zero. For just about everyone, it isn't zero. So the implied discount rate is actually a bit higher for most people.

$2200/month 3/1+1/2 Belmont (Dog friendly) - $880K Zillow (owner bought at $350K or so in the later '90s)

Nice exchange between Randy and John - thanks.

Have you guys tried Realtor.com searches in the Bay Area for multi-family units? They provide you with rents paid for rented units. For example:

http://tinyurl.com/nw6hx

So, fork over $975K for a property yielding $950x4=$3800/month. The hilarious part of this is that on the same page is "Estimated payment (for the $975K) $4,714 Per Month". That's before EVERYTHING, kids.

If you look hard enough, you can chase down some properties less insanely overpriced which might have you thinking "Well, if I have this stranger living above/below me, I can get some additional inflation hedging (rental income) and have a remaining mortgage that is less insane than current SFH. When that happens, slap yourself in the face 10 times and say "I'm going to pay $4000K/month to claim landlord status when this guy is paying $2400K for the same unit?"

Randy, I normally agree with you, but I have to disagree with you on the soft landing hypothesis. If the bay area is still mething out on houses by next January, I'm taking my family and my hard-saved BA cash and moving somewhere else. When the boomers are desperate for cash in 10 years, I can move back here before the kids are in high school. A 30% paycut for a 60% housecut is an exchange I can handle. I believe my thinking is echoed by many of the bears here - our capitulation will be to walk away from the area entirely.

Cash has been trash for 6 years. It will be king in the next recession when the Fed overshoots. If will certainly be king if you relocate to a market with surging foreclosures (Denver), dropping prices (Boston) or bubble-free zones (Austin). I'll have to remember to factor in the "Haverty 8%" when running the calculation on the red state cities.

Peter P. Wrote:

> How is BRKA doing? My BRKB has not been performing well recently.

I always thought the A and B shares performed exactly the same. I have a single share of BRK-A that I got in 1994 with a letter personally signed by Warren Buffett (long story)…

> No one can become the second richest person in
> the world without being born at the right time at the
> right place. Fate is the number 1 cause of success.

There are a few lucky people that just end up in the right place at the right time (like the guy that ran the first Google cafeteria), but most people that do real well are in the right place at the right time, have help from older people who give them advice, and work real hard (very few rich people get there without hard work).

I am a huge fan of Warren Buffett and don’t want to take anything away from what he has done but many people seem to forget that his Dad was 1. A super successful well connected stock broker and 2. A well connected U.S. Congressman. A friend (and smart guy other than his poor decision to attend HBS when he also got in to Stanford) has some great Buffett links at his hedge fund URL below (click Public Site then Articles to get to the Buffett Links):
http://www.t2partnersllc.com/

Access to capital lets people do bigger deals and make more money. I wouldn’t be surprised if Nancy Pelosi’s son Paul (that went to Georgetown with some of my younger friends) becomes a super famous RE investor some day while I just stay out of the limelight doing low profile deals.

What is amazing is that due to the super heated mega bubble Bay Area real estate market almost anyone that has invested in almost anything around here has done better than they would have investing with Warren Buffett. A while back we ran some numbers and if you invested $1,000 with my Dad when he bought one of his first apartments in San Mateo (West of El Camino a few blocks from the $4.5mm condo that someone linked to earlier) you would be many times better off than if you invested the $1,000 with Warren Buffett….

Even if rents go up it will be a while before it is cheaper to buy than rent in Burlingame. My parents are getting ~$2,000 a month for three Westside (West of El Camino) Burlingame homes that would sell today in the $1.2 to $1.4mm range. Property taxes would be ~$1,300 a month and if you made a 20% down payment you would stop getting the ~$1,000 a month interest from your CD. You would be ~$300 a month behind before you even made your first $6,500 a month mortgage payment or spent any money to insure or repair the home… Maybe I better listen to the Realtors since if rents go up 5% a year they will be almost half as much as the guy who bought today is paying…

First off, I am categorically not a housing bull. If I were, then I'd be in one now instead of renting from a less than optimal landlord. My family situation is complicated by the fact that I have a mostly disabled mother living with me, in addition to having a young son. We have inadequate facilities for my mother, and no outside space for my son. So, not only do I believe there is a bubble, but I have put my money where my mouth is. I would be willing to buy a home even at a very high premium, because it dramatically improves my family's happiness. But prices are even too high to justify that.

Secondly, value-style valuation, or any other kind of valuation, doesn't apply to evaluating the housing situation. This situation is best evaluated by a mix of macro and micro economics. Financial calculations only come into play when figuring out what each individual can/should do.

Thirdly, I didn't do any of the hard work to gather the data, do the econometric number crunching, or test the models for the housing bubble. I don't get paid for this, and don't have the time, knowledge or resources. What I did do is read studies like the HSBC economic study in detail. (You can find that on my site, if you click my name, or just google it, and read it for yourself). I also carefully studied the HSBC spreadsheet models, took the time to figure out their assumptions and formulae, and then applied those to my own read on the situation.

I did do some of my own primary research, but this is restricted to Marin County and is in a narrow area of interest. Namely, a position neutral historical evaluation of various cities/zips as compared to premium/discount from mean trendline. Even by this limited measure, I believe that real-estate is seriously overvalued.

Fourthly, I have discussed here, and on my blog with many of the more quantitative regulars from here, a general meta-formula describing how real-estate should appreciate in a normal market. In fairness, nothing has come of that work, primarily because our resident genius in Bayesian networks (Felwesh) has become otherwise occupied. Nonetheless, it was an interesting thought experiment.

Lastly, all I am arguing here, with one sole other voice apparently, is that a soft landing is at least a possibility for some stratifications/localities of homes within a market, namely the BA. This does not mean there is no bubble. Bubbles can deflate fast or slow. Varying policy makers are highly incented to make this a slow, soft landing. I don't think they will succeed in totality. But, it is very possible that their liquidity efforts cause enough slack to guide a soft landing for some segments.

I am tending to believe that higher priced homes in traditionally premium to outer bounded mean trendline areas (that being usually the county), will experience a softer landing. They may only correct by 5-15% nominally (more in real terms), and over a protracted period of maybe 5+ years. Starter/lower priced homes in recently appreciated areas that are not historically valued at a premium (I used Redwood City as an example, but there are plenty) will be more likely to experience a much harder landing; maybe even the 50%ish that some are expecting. But I highly doubt that we'll see 50% drops in Woodside, Atherton or Menlo West of ECR (keeping with the Mid Pen theme).

It's kind of ironic that I find myself now defending a "we aren't in stagflation yet" position, while 3 months ago I was being lambasted by the "a great depression is neigh" crowd. The two situations are mutually exclusive, after all.

I am agnostic about what should be. The role I've more or less taken on in this blog is straightforward analysis. I have practically no ideological biases, and even though I have a horse in this game in that I very much want and need another home so I can put in a damned ramp for my mom's wheelchair, I purposely exclude what I want to be from my analyses.

FRIFY,

I certainly hope you are right for the sake of the economy. For cash to be king again, the Fed needs to assert control over inflation by continuing to ratchet rates until the worst of the speculative excesses are driven from the markets.

I don't share your optimism that this will happen during the next recession (at least a recession deep enough to count). The other side to all this is Fiscal Policy, which is completely out of control at the Federal and CA level (and in about 60% of the other states). Fiscal policy (or lack thereof I should say) has very nasty implications for the Fed's ability to fully deploy their rate lever without causing deep, hard, nasty recessions.

I'm not sure the Fed should risk aggravating a recession for the sake of pragmatic reality. Recessions piss off voters, who then elect quick-fix promising politicians, who then make things even worse. The best scenario is for the Fed to quietly tighten during non-recession periods, while we get rid of fiscally irresponsible politicians.

My parents are getting ~$2,000 a month for three Westside (West of El Camino) Burlingame homes that would sell today in the $1.2 to $1.4mm range.

I have a new observation: rent reflects the present and price reflects the future potential. A large, older house with outdated kitchen and appliances may not fetch as much rent as an upscale apartment with concierge.

We may want to use the rent of renovated homes for comparison.

The best scenario is for the Fed to quietly tighten during non-recession periods, while we get rid of fiscally irresponsible politicians.

I used to think that deflation is in the cards... now I agree with you.

FAB,

My parents are getting ~$2,000 a month for three Westside (West of El Camino) Burlingame homes that would sell today in the $1.2 to $1.4mm range.

The problem is that in areas such as South Marin such homes are pushing $4k/mo now. Still quite far from holding costs of ownership + historical rent-to-ownership delta + reasonable personal premium. But, getting close enough to be significant and not immaterial. The equation is not linear; the curve isn't even completely smooth.

Also, if Bay Area is to undergo a rebirth, the lower end (under 750+) may see quick ratio correction due to rising rent. The 3000/month market may see higher demand than supply.

Should we look more closely into the micro-climate of the housing market? I am seeing hugely mixed signals.

Buffet (from Wiki). Buffet went to Columbia, not HBS. I don't recall anything about Stanford from the biography I read, nor do I see any mention of it on Wiki. If this is in error, you can submit a correction there.

--

He began working at his father's brokerage at the age of 11, and that same year made his first stock purchase, buying Cities Services preferred shares for $38 each. He sold them when the price reached $40, only to see them rocket to $200 a few years later. This taught him the importance of investing in good companies for the long term. His entrepreneurial spirit was present even as an adolescent. At the age of 14 he spent $1,200 he had saved up from two paper routes to buy 40 acres of farmland which he then rented to tenant farmers.

He attended the University of Nebraska (transferring there from the Wharton School at the University of Pennsylvania), and is a brother of Alpha Sigma Phi Fraternity. There he began to fall in love with investing after reading Benjamin Graham's "The Intelligent Investor", the so-called bible of value investors, and obtained a Master's degree in economics at Columbia Business School, studying under Benjamin Graham, alongside other budding value investors like Walter Schloss and Irving Kahn. Another influence on Buffett's investment philosophy was the well known investor and writer Philip Fisher.

After receiving the only A+ Benjamin Graham ever handed out to a student in his security analysis class, Buffett wanted to work at Graham-Newman but was turned down. He went to work at his father's brokerage as a salesman...

---

1950: (20 years old)

Buffett applied for admission to Harvard Business School and was turned down. He eventually enrolled at Columbia after learning that Benjamin Graham and David Dodd, two well-known securities analysts, were professors at Columbia.

FAB,

My parents are getting ~$2,000 a month for three Westside (West of El Camino) Burlingame homes that would sell today in the $1.2 to $1.4mm range.

Let me know if they lose a renter after December. I pay my rent 10 day early, fix things on my own, etc. ;-)

Randy,

I know you're not a housing bull and it's good to be vigilent to signs that our leaders are going to inflate their way out of this. There is a case to be made that that is their strategy, but there are powerful interests who wouldn't like to see that happen. It wouldn't just be Asian Central Banks who would take the hit.

Your comments about Gov't spending as the counterweight to the Fed's lever reminded me that the dance between the two of them was once expressed in a classic two player prisoner-dilemna-esque game. The best outcome occurs when gov't spending is tigher and the fed is looser, but our noble politicians gain by "defecting" with pork-barrel spending which hurts the Fed's goals, thus the Fed must tighten on the next iteration of the game leading to the worst equilibrium state where the Fed is tight and the government accounts are bleeding red.

Lets hope Hank cut a tough deal when taking the treasury job. A 2007 cap on the Mortgage deduction would be too much to hope for however...

Night all.

The rents are nowhere near the year 2000 level. The home prices are at least double of 2000 level.

If the rents rise and reach back to year 2000 level, how do they support home prices that are double than what they were then ??

I believe, income is far more important than rent. My current income and my optimism for future income is what will make me take the risk. Rents do not have any liability like having a mortgage. So just because rent goes up by 200, I am not going to take a loan of 1M !

The price to rent ratio is more important for rental property. For buying my own home, the only thing that matters is my income. It's not how much I will get from it if I were to rent it, kind of calculation. It doesn't matter to me, because I am buying to live in, not rent out. If I cannot afford the monthly payment, I cannot buy it. Simple. The imaginary rent calculation does not help me.

For buying my own home, the only thing that matters is my income.

By that measure, you can always buy something, bigger or smaller, older or newer.

The relationship between your income and housing price is really dependent on demographic changes. I still think that the rent/price relationship is important even for owner-occupants.

It doesn’t matter to me, because I am buying to live in, not rent out.

In the end, this is true. Price/income determines whether you will buy. Price/rent determines whether you have a good deal. Homebuying is not totally a financial decision.

How much lag is there between rising rents and a RE bull market ? At least 2-3 years from previous experiences. If the current trend continues, in 2-3 years, people would be scared to buy the houses and would be much willing to pay the rent, which would seem essentially risk free.

I do not know what you guys are looking at. I watch Ziprealty every day. I see price reductions and houses sitting on the market for a loooong time.

Here are some fuzzy indications.

I was driving on Bollinger from Lawrence to De Anza. On EVERY single corner there was at least one board for an open house. This is Cupertino my friends. Houses are supposed to be selling in 24 hours at most. A lot of buyers apparently did not get the memo regarding the soft landing.

I get numerous calls from RE agents. I have stopped taking calls if I don't recognize the number or the name. One RE agent mentioned that the market is not going to change a lot, and there is lot of choices and how great time it is to buy. I do not argue with them. But if the market is going to remain like this - which is translating to almost 0 appreciation - it's definitely worth waiting.

This is supposed to by prime season. It is far from it. The numbers tell only a part of the story. It's the psychology that is changing. And that matters for more than numbers.

What makes you think people will pay attention to price to rent ratio, when they never did in last 4 years ??? This is the WEAKEST argument I have heard about the soft landing. If that ratio was important to people, this bubble would not have happened in the first place.

Income and psychology. Everything else is secondary.

Good to hear you bubbleheads are coming to your senses.

Well, I always think that it is fine to buy if one can conservatively afford a house that is sufficient for 7 - 10 years without assuming future price appreciation.

After all, www.patrick.net itself has rents going up!

The general rental market is still not very hot. However, some pockets are hotter than others.

the economy is strong guys.

It is mixed. Buy it does look slightly better now.

How much lag is there between rising rents and a RE bull market ? At least 2-3 years from previous experiences. If the current trend continues, in 2-3 years, people would be scared to buy the houses and would be much willing to pay the rent, which would seem essentially risk free.

2-3 years is about right.

If we dont get a downward correction there is no incentive to work anymore. Why work for money that you can only buy debt with?

can u please explain it more?
thanks

Peter p i will be thinking of u today when i go to the liberdade, a suburb of saopaolo and look at all the sushi that they have. There is an avenue called ave paulista in which i saw a chinese couple making food on the road right in front of u. The woman collects the money , while the guy cooks the noodles and adds all the fresh food right in fron of ur eyes. its a treat to just watch him cook and his wife makes sure she collects all the money. The wife is very very smart, she has 10 different people handing her money almost at the same time and she gave me the exact change. by the way for a big serving it costs 5 heyas =$2.0. The brazilian currency has appreciated from 1$=3 heyas in the last 6 months.

The ordinary brazilians that I talked to are upset. They dont like a strong heyas because less americans come here and also buy less things. may be randy can enlighten me here. How does the fluctuation in the heyas affect the rich vs the poor in brazil? Will this be good time to buy real estate in brazil? however i cannot afford it in the big cities. i am thinking farmland in a smaller city such as fortalezza or recife.

New thread: "HARM to Peter P and Randy H: I find your lack of faith disturbing."

What is amazing is that due to the super heated mega bubble Bay Area real estate market almost anyone that has invested in almost anything around here has done better than they would have investing with Warren Buffett. ...you would be many times better off than if you invested the $1,000 with Warren Buffett…

hmm, except Buffet himself just divested himself of a house at Laguna Beach, OC, for 300% profit and still owns another. And pointed to a bubble in DC, CA, etc...

Buffett finds parable in sale

"Legendary investor Warren Buffett sold a Laguna Beach home, then cited the sale as an example of the nation's overheated real-estate markets.

In February, the world's second-richest man sold a 51-year-old, two-bedroom, ocean-view house in Laguna's Emerald Bay neighborhood for $3.5 million.

The result is signature Buffett. He bought this home practically at a market bottom in 1996 for $1.05 million, according to county records.

Buffett, 74, still owns another nearby home in Laguna - one he bought for $150,000 in 1971. Buffett said 18 months ago this house was worth $4 million - but make that $5.2 million today, based on appreciation rates for O.C. homes."

Randy H. wrote::

> Buffet (from Wiki). Buffet went to Columbia, not HBS

I know where Buffett went to school (I've not only read 75% of the books written about him, but I've met him twice).

I may not have been clear, but I was trying to make a joke that Whitney (not Warren) from T2 partners http://www.t2partnersllc.com/ (who is an even bigger Buffett fan than I am with lots of great Buffett links on his site) is a smart guy despite his poor choice in B Schools...

I wrote:

> What is amazing is that due to the super heated
> mega bubble Bay Area real estate market almost
> anyone that has invested in almost anything around
> here has done better than they would have investing
> with Warren Buffett.

Then Different Sean Says:

> hmm, except Buffet himself just divested himself of
> a house at Laguna Beach, OC, for 300% profit and
> still owns another.

It is good to hear that Buffett is making money in Real Estate, but that does not change the fact that if somone invested $5K with my Dad in the 70's (about what it cost to take down a Burlingame Home taking over the 1st TD and getting a seller carry 2nd) they would be doing far better than if they bought Berkshire stock...

FAB,

Sorry for the misread; I did think you were referring to Warren not Whitney. We are in agreement that Whitney's choice of B Schools was ill founded; although probably not for the same exact reason...

but that does not change the fact that if somone invested $5K with my Dad in the 70’s (about what it cost to take down a Burlingame Home taking over the 1st TD and getting a seller carry 2nd) they would be doing far better than if they bought Berkshire stock…

That's the conundrum about real-estate as cash-flow investment. A knowledgeable operator who is intimately familiar with the local environment, is a smart businessman, and has a long-term planning horizon can almost always do better over time than even the brightest investment manager. The problem is that his operations have limited scale before they begin to deteriorate cash flow, and his strategy seldom succeeds outside of the markets he intimately understands. In other words, he and his family can become very rich, but he's not likely to subscribe $1BN in limited partners and make them rich too anytime soon.

Randy H Says:

> The problem is that in areas such as South Marin
> such homes are pushing $4k/mo now.

I don't know why anyone that works Downtown would want to live in South Marin when they could live on the Peninsula. The only people with kids I know that are in Marin are Branson and MA grads with family and lots of other connections (like the SFYC race team) to the County.

FAB,

My wife is an exec in San Rafael, you can probably guess which company. We are here so she doesn't have to trade drive time for mom time. If she can get her department moved to SF in the next couple of years we'll go back to the Peninsula -- we lived there for 10+ years before moving up here last year.

JH,

I think you missed FAB's point. I love to disagree with FAB, but here I have to go with him. The point isn't how many people WB made rich. As I pointed out, FAB's dad's operation won't scale, at least not when compared to Warren's.

But, if I had the choice of being FAB's dad's business partner, or an everyday shareholder in BRKA, I'd take FAB's dad every time. It doesn't even have anything to do with real-estate. It has to do with owning a piece of a free-cash-flow. I'd rather own 50% of a $1M/year FCF than put my potential disposable income were I to work for someone else, say $60K/year worth of investment, into BRKA (or even a more thoughtfully diversified portfolio).

This is true even if my operation has to use a lot of debt. So long as the debt isn't at risk of financial distress, and the tax-shield is net positive, I can leverage to my advantage. I can only do this with BRKA if I use margin, and the margin rates are low, and the CAPM market returns (or Famma French if you're not a value-investor believer) are above the margin interest + transaction costs. As an operator in my own biz, I get the full benefit of leverage, but take the same or less downside risk as I would leveraging a market investment (assuming corporate indemnity holds).

Even adjusting for a huge volatility to the FCF earnings, you come an order of magnitude ahead investing your "life choice" into yourself rather than someone else...if you can create FCFs.

FAB
It is good to hear that Buffett is making money in Real Estate, but that does not change the fact that if somone invested $5K with my Dad in the 70’s (about what it cost to take down a Burlingame Home taking over the 1st TD and getting a seller carry 2nd) they would be doing far better than if they bought Berkshire stock…

hmm, yes, the irony in it for me is that Buffet is personally profiting from the housing boom at the same exorbitant price hikes, rather than any advice to invest with Berkshire Hathaway... he is actually one of the 'almost anyone that has invested in almost anything around here'.

'Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51 million now, vs. just $497,431 if the money were invested in the Standard & Poor's 500-stock index.'
http://www.businessweek.com/1999/99_27/b3636001.htm

anyway, who cares?

I do. I love WB because I find value investing to be intuitively powerful, ethical, and "net positive" for the economy.

All that said, that article confirms what I've been saying about BRKA: It has not come close to matching performance of other strategies from 1995 to present. Other strategies which assume that markets are efficient (ala Famma French 3-factor models) and trade upon that assumption have dwarfed BRKA in real returns over the past 10 years.

Things like BGIs macro hedges. Things like Trafelet Delta Funds, which is essentially value-investing with active management and the ability to "short value" and arbitrage value.

By the way, JH is keen to want to adjust everything for inflation (and I'll suspend the comments on how that is not always indicative). But, if you're going to adjust returns, then adjust them properly:

BRKA's returns, real or nominal, must be adjusted for a logarithmic scale. It is important to weight more recent results heavier than more distant results. You must also for skewness off of a "normal" or "log-normal" (depending up on how you adjust) distribution. If you don't do all that then you're not comparing apples-to-apples when you compare BRKA to anything else.

I can show that steel has 1,000X better returns than BRKA if I use enough data and don't use a log scale. In fact, I can show Gold has 1,000,000X better returns if I go back far enough in the data and don't weight more recent results more heavily.

test :twisted: