Mike Stathis

7 Reasons Not to Buy Berkshire Hathaway

The fact that BRK pays no dividend is something that is a bit bothersome to me. I too addressed this point in a previous article as a reason why I would never buy the fund. Good of you to notice, since the masses rarely criticize him.

seekingalpha.com/artic...

But the fact is that all value investments MUST pay a dividend. One could argue that the reinvestment of the dividend has enabled BRK to achieve the growth similar to that seen in a growth stock/fund, but with less risk. My counter would be this...leave it to each investor to determine whether they want the dividends reinvested.

Another reason I would not be in favor of buying BRK (esp. during this bear market) is the fact that BRK has no ability to avoid market risk.

Also, you should note that Buffett invests in insurance companies mainly because they are cash cows. And having cash is essential to his asset management strategy, since, like mutual funds, BRK works primarily to lower the cost basis of positions during market declines, as opposed to minimizing market risk via liquidating positions. This is something I also discuss in the same article.

Asset Allocation as a Method for Risk Management

Richard, you forgot the most powerful asset that minimizes investment risk - cash. As I'm sure you are aware, market risk is the largest risk investors face - a risk that is non-diversifiable (systemic risk). Thus, those who are able to use market forecasting combined with appropriate liquidation (i.e. market timing) will do quite well.

Diversification is best used for passive investors and investors with short horizons; otherwise, it actually lowers your total returns.