The world has record debt levels.
The problem is only getting worse not better.
The only way central bankers know how to deal with this situation is by continually injecting adrenalin (liquidity) into the system.
The world is on life support.
Japan has been on life support for 32 years. The scenario where the world becomes Japan is certainly not zero.
Japanification may happen.
Central banks have never been more interventionist.
The bond market is the compass for capital markets. This compass is broken.
In years gone by, you could count on the breathing in and breathing out of markets…
It is quite likely that Berkshire Hathaway shares hit $1 million a share by 2030.
Let me explain why.
Berkshire has recently been buying back its shares at approximately 5% per annum.
If this continues, there would be approximately 37% less shares outstanding by 2030.
If Berkshire grows its earnings by 7% over this period, then that would be 83% higher earnings by 2030.
83% higher earnings with a 37% lower share count is 2.9 times the current earnings per share.
The current share price is $350,701. $350,701 times 2.9 is $1,017,032.
There are two assumptions here that I think…
Artificial Scarcity
Scarcity or the hype of scarcity has been at the centre of most asset bubbles in history.
The fear of missing out (FOMO) due to limited supply (or artificial limited supply) drives frenzied and irrational behaviour.
South Sea Bubble, The Tulip bubble and countless housing bubbles have been driven to extremes due to scarcity scare mongering.
“If you don’t get in now, you will miss out”,
are often the worst words to hear before allocating capital.
Ideally you want to hear the phrase:
“you’ll never make money from this ever again”.
I recently had my first TV interview.
I thoroughly enjoyed the experience and I thank Ausbiz TV for the opportunity.
One of the excellent questions I was asked in the interview was my opinion on Tesla being a higher market cap than Berkshire Hathaway. My answer was, “anything can happen in markets”.
Anything can truly happen in markets and the last few years have proved this:
- The Swiss 50 year bond went negative
- Tesla’s market cap got to half a trillion with virtually no profits.
- Nikola traded at a $37 billion dollar market cap and even after it was exposed…
There are some companies that have enormous upside, yet are highly uncertain. There are others that are very certain, yet have limited upside.
If you are a reasonable golfer, you can bet heavily on a 1 foot putt. A 5 foot putt has a lower probability and you might land a 20 foot put 1 in 20 times.
The secret sauce of our investing style is to concentrate on our our 1 foot putts, limit capital allocation in our 5 foot putts and generally avoid the 20 foot putts.
Disclosure: I am a terrible golfer and I should not bet…
Rob Shears
Any information provided is of a general nature. It does not consider your objectives, needs or financial situation. Please obtain professional advice.
