We Asked Chris Bloomstran Why He Won’t Own the S&P 500 At These Levels — And What He Does Instead
What this covers
This episode features Chris Bloomstran of Semper Augustus discussing market concentration, AI capital spending, Berkshire Hathaway, and the risks facing today’s equity investors. The conversation explores whether we are at a secular valuation plateau, how AI investment may reshape returns, and why passive investors may face more risk than they realize.
Semper Augustus Investments https://www.semperaugustus.com
Topics covered:
* Why extreme market concentration in the Mag 7 may create long-term risks * The concept of a “secular plateau” vs a market peak * How AI capex could become a classic capital cycle with poor returns * Why hyperscaler spending may not translate into shareholder profits * The hidden risks of leverage both on and off balance sheets * Why buy-and-hold investing is harder than it seems in practice * How valuation discipline drives long-term investment outcomes * Berkshire Hathaway’s cash position and what it signals about opportunity * Why capital allocation matters more than growth narratives * Lessons from past bubbles including railroads, fiber, and the Nifty Fifty * The fragility of life and how it shapes investing priorities * The importance of independent thinking in the age of AI
Timestamps: 00:00 Intro 05:12 The “Both Sides Now” framework and AI theme 09:03 Secular peak vs secular plateau in markets 13:08 Leverage risks and balance sheet quality 17:42 Why passive investors are more concentrated than they think 21:12 The limits of long-term compounding and disruption risk 25:06 Why valuation matters more than “forever stocks” 29:10 Portfolio construction and return on capital differences 33:18 AI capex boom and capital cycle parallels 37:05 Why hyperscaler spending may not generate adequate returns 41:12 The math problem behind AI investment returns 45:10 Competition, redundancy, and pricing pressure in AI 49:02 Is AI an existential risk for big tech? 52:06 Berkshire Hathaway’s cash and Apple sales 56:08 Capital allocation lessons from Coca-Cola vs Apple 59:20 What Berkshire’s cash signals about future opportunities 01:02:10 The fragility of life and investing priorities 01:05:28 Final lessons for investors: reading, skepticism, and independent thinking
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Chris Semper argues that current market valuations represent a secular plateau rather than a peak, driven by extreme concentration in seven mega-cap companies that face existential risks from massive AI capital expenditures with uncertain returns, making index investing particularly hazardous for long-term returns.
- Seven companies represent one-third of S&P 500 market cap but only 12-13% of sales, trading at 35x vs market 26x, with $3 trillion in cumulative AI CapEx through 2030 requiring revenues that don't yet exist
- Historical precedent shows market plateaus (1960s-1980s) can persist 16+ years with occasional recoveries masking underlying secular deterioration, and no concentration of top 10 businesses ever persists across decades due to disruption
- Portfolio selection and valuation discipline—buying at 10-13x earnings vs index at 26x, avoiding leverage, and rebalancing away from expensive positions—have historically outperformed during secular peaks by 15-20% annually
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Enterprise users of AI services (like freight forwarding and logistics companies using Anthropic's Claude) are early adopters benefiting from AI productivity gains, but as AI adoption becomes ubiquitous across industries, competitive advantages will erode and industries will compete on return on capital rather than on productivity benefits, similar to how early adopters of any technology benefit disproportionately.
“the enterprise users, if you're a freight forwarding company, if you're a logistics business, you're using this and you're paying you're paying Anthropic for for Claude. Um and you're benefiting from it. Now, that's back to the capital cycle. In each industry that is is an early adopter and then an adopter, the early adopter is going to wind up having an advantage on productivity and profitability, but ultimately what I've seen over all these years and study history is once everybody adopts it, industries compete on a return on capital unless you're an oligopoly or a monopoly. And so, once everybody adopts it, the the the the benefit kind of goes away to the early adopter”
There is 'a growing amount of off balance sheet leverage' in many of the largest technology and hyperscaler companies that makes them appear healthier than they actually are, and Semper Augustus specializes in identifying and avoiding companies with hidden leverage that could pose risks if deployed into leveraged acquisitions or structured financial instruments.
“there's there's a growing amount of off balance sheet leverage as well. And we're we're pretty good at teasing out where the leverage is and if it's too high to service it, we generally will just pass.”
In the late 1990s, most investors expected future returns of 15-20% per year based on prior 15-20 year performance, but instead experienced losses for the better part of the next 13-14 years, demonstrating how recent experience dictates expectations and causes investors to extrapolate favorable conditions forward.
“In the late '90s, most investors had an expectation they'd make uh historically past 15 years 20% a year. Well, no, you had you had losses for the better part of the next 13, 14 years.”
History shows there is no decade or period where the top 10 businesses were all the same top 10 businesses two decades on, because disruption happens, and these seven companies—however well-managed today—cannot guarantee they will remain the dominant seven in 10 or 20 years.
“History shows when you get this kind of concentration and it's unprecedented today to have seven companies as big or to have the top 10 be as big, but there's there's no decade or period where the top 10 businesses were all the same top 10 businesses or two decades on. Uh disruption happens.”
The average investor should approach all information—from reading, earnings calls, or AI queries—with systematic skepticism, investigating claims rather than accepting them at face value, because market participants are motivated to present information in self-serving ways, and this healthy skepticism is 'probably the one unhealthy aspect of being an investor.'
“confirm, investigate, treat anything that you read or that you hear with skepticism. That's probably the the one unhealthy aspect of being an investor is you learn that everybody's trying to tell you something to their benefit. And they'll sugarcoat listening to earnings calls that are just Pollyanna to an extreme. Do your own work, read the footnotes, understand what you're understanding what you're reading.”
In previous capital cycles (canals, railroads, electricity, fiber), the technologies were transformative and necessary, but massive overcapacity was built—railroads overbuild by 120,000 miles (260,000 to 140,000 track miles today), and fiber lit only 4-5% in the years following massive investment—yet the early investors and builders did not capture the returns; the returns came much later to those who bought the capacity at distressed prices.
“canals, railroads, automobiles, auto infrastructure, so the highway system, ultimately the fiber uh in telecommunications... there's there's a redundancy to of supply... we overbuilt fiber so massively that by 1990 by 19 or 2001 or 2002 when all these companies started going out of business we'd only lit we were only utilizing 4 or 5% of the fiber that was in the ground... it ultimately got used and you couldn't have had YouTube you couldn't have had streaming video Netflix without it but it wasn't used in in the time necessary to produce a return on it.”
Microsoft no longer has net cash on its balance sheet as of recently, signaling that the hyperscalers have shifted from being capital-light, highly profitable businesses with fortress balance sheets to capital-intensive infrastructure operators taking on leverage to fund AI infrastructure buildout.
“Well, you're right in this and particularly with the what are now hyperscalers, they until recently, you know, who would have thought Microsoft no longer has net cash on the balance sheet. So, this this AI boom, which is most likely a capital so classic capital cycle, you're starting to see some leverage there”
Oracle has essentially no shareholder equity on the balance sheet because the company has spent enormous amounts on share buybacks to offset dilution from stock options and RSUs, and now must incur additional leverage to fund its participation in the AI arms race, creating a compounding financial stress.
“take an Oracle, I mean, Oracle has no shareholder equity at least until recently because they've spent so much money buying their shares back to offset a dilution from giving away options and and RSUs, but to shrink the share count. But they did it with a ton of debt and now here they are entering the AI arms race requiring even yet more leverage”
If Buffett had owned the Magnificent Seven in meaningful allocation from 2011 onward, returns would have been excellent, but they weren't expensive when purchased—Apple traded at 10x, Microsoft at single-digit multiples, Google at reasonable valuation—demonstrating that initial purchase price is determinative of long-term returns.
“they weren't expensive. I mean, Apple traded at 10x. Microsoft traded at a single-digit multiple. And Google just traded at a at a at a reasonable valuation. They they were all at varying points cheap.”
Investors deploying capital for new clients should follow the Hemingway principle from 'The Sun Also Rises'—'gradually at first and then suddenly'—by not fully investing capital on day one but rather deploying gradually, allowing the opportunity to buy as valuations evolve.
“We don't we don't just fully invest on day one typically unless institutions want to be fully invested and so the old line from Hemingway's uh Sun Also Rises, "Well, Bill, how'd you go bankrupt?" Well, gradually at first and then suddenly. Well, it's a secular peaks and troughs don't happen overnight”
The enormous capital being spent on AI and cloud infrastructure extension—projected at $3 trillion cumulatively through 2030—will introduce depreciation expenses and maintenance CapEx that, at a 10% depreciation schedule, represents approximately $300 billion annually in required cash outflows, yet current revenues from these investments are only $30-60 billion, creating an unsustainable math for returns on capital.
“if you look at CapEx projections through 2030, they're saying $3 trillion will be spent... on $3 trillion at a 10% depreciation schedule, that's $300 billion of depreciation expense... The revenues in aggregate, depending on who you listen to, were anywhere from $30 billion to $60 billion. The revenues against the depreciation. No profits yet.”
There is significant redundancy of supply in AI data center capacity and chip production, similar to the redundancy in railroad track miles and fiber optic capacity in prior cycles, and because multiple hyperscalers are building duplicate LLM capabilities and infrastructure, they will eventually compete on price, which will compress margins below acceptable levels.
“there's a redundancy of of supply... We wound up not needing uh the number of track miles the 260,000 track miles we've got 140,000 track miles today 100 years later we overdid it by that many we overbuilt fiber so massively... there's a case to be made that you've got the same redundancy in in data centers and in chips that we had in fiber, that we had in railroads. Um And if that's the case and they compete on price and the revenues don't evolve in such dramatic fashion that the profits will accrue to justify returns on capital or to get to returns on capital, then you get margin compression.”
Warren Buffett made a strategic error by not selling Coca-Cola despite its price rising from $1.3 billion cost basis to $28 billion market value, because after Gen Re acquisition diversified Berkshire's portfolio in 1998, Coke only compounded at 4.5% annually (2/3 from dividends) rather than the 36% annual returns in the first 10 years, making it unworthy of its massive portfolio weight given margin and growth stagnation.
“he ultimately got 1.3 billion dollars invested. And in the first 10 years, 9 and a half or 10 years going into 98 Coca-Cola the stock compounded at 36% a year... In the ensuing 27 and 1/2 28 years now, Coca-Cola has compounded at 4 and 1/2% a year... And so, vowing to not repeat the same mistake, I think the economics of Apple are not dissimilar from the economics of where Coca-Cola was.”
Investors should develop the ability to think independently and accumulate judgment through cumulative reading and experience (successes and failures), rather than outsourcing their thinking to AI or consensus, because the efficiency gains from AI should not come at the expense of developing one's own reasoning capacity.
“I think it's it's it's not only read all the time but learn how to process what you're reading and be able to think for yourself... it's making us all more efficient. But you don't want to make yourself so efficient that you don't learn you don't that you don't accumulate the ability to think for yourself and have judgment. So, advice would be learn how to learn how to incorporate judgment into your thinking.”
Investors should not expect to predict who the winners will be in a major capital cycle (like AI or fiber in the late 1990s); instead, the prudent approach is to recognize the cycle itself and be skeptical of investing in the primary builders and infrastructure players, as they rarely capture the economic value generated by their capital investments.
“I don't think you would have predicted who the winners were in 1999. Much like I'm not sure you know who's going to win this thing today except that some of these guys have the resources are so vast. They can't kill themselves... it's a gold rush. It's a fiber boom and you're going to have winners and losers”
Seven companies make up one-third of the S&P 500 market capitalization but represent only 12-13% of sales and 25% of profits, and they are trading at 35 times earnings while the broader market trades at 26 times earnings, despite being twice as profitable on a net margin basis as the rest of the 493 companies.
“seven companies represent a third of the S&P 500... they're 12 or 13% of sales... they're a quarter of that [25% of profits]... they're twice as profitable on a net margin basis than rest of the 493 companies... they're trading for 35 times where the market's trading for 26 times.”
Revenues accruing to hyperscalers from AI in many cases are coming from capital investments the companies are making in each other, lending each other money, and borrowing against chips as collateral, rather than genuine external customer adoption, representing artificial internal circulation of capital that masks the lack of external market demand.
“And the revenues that are there, in many cases, are coming from each other, making capital investments in each other, lending each other money, borrowing against chips.”
Labor displacement from AI (and prior transformative technologies) is not permanent; historically, when game-changing technologies displaced workers, society has found new employment and roles, though the transition is neither purely efficient nor easy.
“if we displace labor which these game-changing technologies always did. You know, you've generally society is down to place to replace employees. It's not purely efficient and it's not as easy, but but we've not permanently put big chunks of the population out of work for decades and decades. They they the you find new things to do.”
AI is a 'massive game-changer' for society, corporations, and individuals because it is changing how information is used and processed, introducing significant productivity gains (output per hour worked), similar in magnitude and transformative potential to prior breakthroughs like railroads, electricity, and the internet.
“I think AI is a massive game-changer for everybody, not just investors, but for any household, any individual, corporations, enterprise. This is changing the way information is used and and and processed. It'll introduce and it already is introducing productivity. So, output per hour worked.”
Depreciation schedules for data center assets and AI chips have been extended from 3-4 years to 5-6 years, which is debated as to whether the longer lives are justified, but the more important question is whether the chips can be repurposed for inference tasks after their training-cycle utility is exhausted, extending their useful life to 6-8 years.
“there was a debate throughout the year in in in a lot of corners um that when depreciation schedules uh for data centers and and the use of chips moved for the big four, big five companies from three or four years to five or six years, there was a the argument as to whether that was judicious, made sense. What was the actual depreciable life of Nvidia's chips? Um I don't I don't think that's I don't think that's necessarily the the the what's what's important What's important is on $400 billion of CapEx, you're introducing depreciation expense.”
Semper Augustus owns some company holdings (likely power generation turbine suppliers like GE) that benefit from AI infrastructure buildout due to power constraints, and power generation capacity is a structural constraint on how quickly data centers can be built, making power infrastructure a potential beneficiary of the AI cycle.
“We just We We've got companies in the portfolio that that benefit from it. Um We own some Commons uh which I haven't bought in a while... there's a constraint on um the ability to build data centers fast enough and so turbines, GE's, which we don't own with the exception of some legacy accounts that have low basis of shares. We're waiting for a basis step up. I mean, the turbine business is is 4 years behind. I mean, the they they they can't they can't keep up production fast enough to keep up with demand.”
Berkshire Hathaway currently holds $370+ billion in cash (25-26% of firm assets) versus a historical average of 13-14%, with approximately $100 billion derived from Apple sales and another $100+ billion from dividends from insurance operations, creating an opportunity and obligation for CEO Greg Abel to deploy capital into equities or whole companies if valuations become attractive.
“Berkshire's cash as a percentage of firm assets has averaged 13 or 14%. It's double that today. It's 25 or 26% whatever it is, 372 or whatever billion. Um the cash is largely there as a by product of the Apple sales... Of the 372 billion dollars of cash, 100, roughly 100, is required as insurance reserve to support the underwriting operations... there's over $100 billion of cash that has been taken out of the insurance operation... In the last 2 years, they've dividend almost $100 billion up to the parent company.”
The hyperscaler companies have acknowledged among themselves that they probably shouldn't all be spending this much money and don't need five large language models, but each is terrified of being left out and losing competitive position to competitors, creating a prisoners' dilemma dynamic that forces overinvestment.
“They've all said we probably shouldn't all be spending this much money. We don't need five LLMs. But they're all terrified of being left out and losing your competitive position against your competitors.”
The only advantage the current hyperscalers have over 1999 fiber investors is the sheer magnitude of their existing profitable operations and balance sheet strength, which means they cannot go bankrupt in the near term, but this does not protect shareholders from significant stock price declines if margins compress and capital returns disappoint.
“These guys can do it because they're not going bankrupt anytime soon because they're already so profitable in in the different corners of their operations, but I think the risk to the capital heated investor in the stock market and the risk to investors in the hyperscalers is capital being capital.”
Microsoft's strategic investments in OpenAI ($13 billion in early rounds plus additional commitments) include intellectual property ownership deals where Microsoft owns OpenAI's IP if OpenAI fails to reach profitability thresholds, positioning Microsoft to capture value from AI infrastructure even if OpenAI's independent commercial model fails.
“Microsoft was an investor in the couple of the early funding rounds they're in for $13 billion or whatever and if OpenAI doesn't make it to the finish line, Microsoft owns their IP. Um so they're they're they've all done things to position themselves to to win.”
The Semper Augustus portfolio has historically traded between 10-13x earnings (equivalent to 8-10% earnings yield) with very low net leverage, 18% of profits paid as dividends vs. 33% for the S&P 500, and companies that reinvest retained earnings at high-teens returns on capital, yielding superior long-term compounding vs. index investors despite lower starting yields because reinvestment creates a 'control premium'.
“our portfolio generally has very little net leverage... our companies earn 19 or 20% on equity... the S&P 500 in aggregate earn 20% on equity... at a stated 20% return on equity, the return on capital gets shaved way back because there's as much debt in the capital structure as there is equity... our portfolio generally has very little net leverage... with portfolio activity and ongoing earning progression of the companies we own, we've generally had a portfolio that's traded between 10 and 12 or 13 times earnings... If we've assessed the earning power of the companies that we own properly, we're going to make the earnings yield... I've got 18% of our company's profits coming to us as dividends versus a third for the S&P 500... my businesses are really investing at mid-teens... then I'm starting with my earnings yield of, let's say, 8 and 1/2 at present... but the majority of my earnings are being invested... at a mid-teens return.”
Costco, despite being one of the best businesses in the world, is currently trading at around 50-60x earnings, which reflects a peak valuation; Semper struggles to justify 25x earnings for Costco despite its exceptional quality because it cannot significantly expand margins further or grow store count/square footage much faster than it has historically.
“Costco, which we own and love, uh we still own a little bit, but had traded over 60 times earnings. You can't expand the margin to the extent they did over the last since we bought it in 1994 or 2004 at kind of a 20 multiple on on uh understated earnings understated returns on capital... the thing traded recently at 60 times, it's down to 50 times. I can't get my mind much around 25 times based on how fast it grows despite it being one of the best businesses in the world.”
For a cap-weighted index investor, returns will likely be muted over the long term because the top seven companies cannot sustain their historical growth rates or margin expansion indefinitely, and as growth slows and/or margins compress, Mr. Market will re-rate multiples downward from the current 35x to lower levels, destroying the compression returns that have dominated the past 13-15 years.
“I think returns are likely muted for a US capitated investor owning the S&P... What you know is over the next 10 or 15 years, these things can't grow as fast as they have grown for the prior 10 or 15 years... you can't continue to expand margins... they just get so big... they're going to grow slower. And if if growth slows sufficiently, again, or margins compress sufficiently, you tend to you tend to take it out of the multiple.”
Meredith's firm practices low turnover (15-20% annually) but uses that activity advantageously by forcing themselves to sell something whenever they buy something, trimming the most expensive corners of the portfolio to buy the cheapest corners, which is a critical discipline that generates alpha.
“We are very low turnover, 15, 20% a year. Uh but where we do move money around, uh it's advantageous to the overall portfolio valuation. When I buy something, I'm forcing myself generally to sell something. So, I'm always trimming the most expensive corners of the portfolio to buy the cheapest corners of the portfolio.”
If Meredith's firm had simply stuck with the portfolio of holdings from when it started Semper Augustus in the late 1990s without making any changes, results would have been a disaster, proving that buy-and-hold forever is incompatible with long-term outperformance.
“If you had simply taken the Semper portfolio at any point in our history and we just stuck with what we owned when we started the firm in the late '90s, results would have been a disaster.”
S&P 500 companies earn 20% stated return on equity but only 12-13% return on capital due to high levels of debt in the capital structure; additionally, much of capital allocation at index companies goes to share buybacks at high multiples, which shrinks equity without creating proportional gains, reducing true reinvestment returns.
“the S&P 500 in aggregate earn 20% on equity and equity that's probably understated for varying reasons, which we can talk about, inflation, uh depreciated assets, the re-purchase of shares at higher and higher and higher multiples, which shrinks equity, write-offs and write-downs. But at a stated 20% return on equity, the return on capital gets shaved way back because there's as much debt in the capital structure as there is equity and that's not our portfolio. So, these things earn the S&P earns 12 or 13 on capital.”
Apple's current valuation of 35x earnings is unjustified because the company can grow its top line only 6-7% annually and lacks the ability to expand margins much beyond current levels, meaning the stock should not command such a premium multiple given these growth constraints.
“it's a business that I don't think can grow its top line much more than 6 or 7%. And I don't think it's got a an ability to expand its margins much above the current level. And so, at that level of growth with an inability to expand your margins much, you don't pay 35 times earnings for those. And with the tax rate, the corporate tax rate now at 21%, you sell it down.”
Semper Augustus is willing to tolerate temporary leverage if a company makes an accretive acquisition and works off the debt over 3-4 years, but is generally skeptical of high leverage and has found over 35 years of investing that conservative leverage discipline 'keeps us out of trouble.'
“it would be easy to tolerate leverage if you've got company does makes an acquisition and they put leverage on the balance sheet, but they're more comfortable at a lower gearing rate if they they work it off over 3 to 4 years... we're generally pretty skeptical about the use of too much leverage. And over 35 years investing and 27 years investing at Semper Augustus, I I It tends I think it keeps us out of trouble.”
The current valuation environment and leverage levels are unfavorable enough that Semper Augustus is willing to pass on many opportunities and maintain significant dry powder (cash and other instruments) because the expected returns from deploying capital at current valuations do not compensate for the risks of further market deterioration.
“we're so concerned about leverage broadly and deficits that we don't like leverage and we don't allow much of it onto our corporate balance sheets that we're willing to own in an aggregate. Um We've got a very debt-light in a lot of cases half our companies have net cash on the balance sheet. So we're we're probably even more conscientious about leverage today because of the macro in terms of how much risk we're willing to take in terms of balance sheet capitalizations.”
In periods of high debt and secularly high valuations, value investors must be significantly more active with understanding of valuation and intrinsic value to generate returns, as the passive buy-and-hold approach becomes riskier.
“If you're in a period of of high debt and secular secularly high valuations, I think you better be a lot more active with an understanding of how valuation works and intrinsic value valuation works to use the the value investing term.”
Berkshire's insurance operations are being less aggressive in writing new business (particularly reinsurance and some primary lines) due to late-cycle conditions and excess competing capital, and the company has accordingly reduced underwriting activity to match reduced capital deployment capacity.
“in fact, in a lot of those insurance lines that Berkshire has, there's so much competing capital and you're so late in the economic cycle that Berkshire is writing and they're going to write materially less business in reinsurance. They're going to write way less business in some of their primary lines.”
Valuations today represent a 'secular plateau' rather than a peak, similar to Irving Fisher's 1929 'permanently high plateau' framing, which allows for a rolling 4-year window of elevated prices but does not mean the market is at an absolute top; secular peaks and troughs can unfold over 16-17 years (late 1960s to early 1980s), with investors experiencing multiple 20-40% drawdowns masked by occasional recoveries.
“instead of sticking to '21 being a secular peak, I borrowed from Irving Fisher's kind of classics... that in at the little at the very peak in 1929 that we were at a permanently high plateau... I'm calling this a secular plateau, which allows for a 4-year rolling window of prices being high... The late '60s was pretty obvious uh obviously a peak... You had a big sell-off following that, 20% or so, then a recovery by '69... 20% decline? But if you if you understood fundamental valuations as Warren did, you would have known this is most likely uh a tough period to be uh an investor.”
Guy Spier, a prominent value investor and friend, recently decided to close his investment firm due to a diagnosis of aggressive cancer recurrence, prioritizing his health and time with family over continuing his professional career, illustrating the fragility of life and the importance of not deferring life satisfaction to an indefinite future.
“Guy's situation breaks my heart. He's got a pretty aggressive cancer. Um he just sent me a really beautiful kind of a video note... he made a decision to close his firm... he said, Look, I've I'm fighting this cancer that's come back. Loves what he does for a living. Um wouldn't in a million years I think I've ever contemplated walking away from it. But he's he's got to take care of his health and and he's got to spend the time requisite with his family.”
Joni Mitchell's song 'Both Sides Now' provides a useful frame for understanding how perspective changes with experience: she begins seeing clouds as beautiful, then recognizes they block sun and bring rain, and applies the same evolution to understanding love and life, which serves as a metaphor for understanding market clouds (the cloud computing infrastructure) and how one's assessment changes as you get jaundiced by experience.
“She kind of goes through an evolution of how she perceived clouds probably when she was a kid. And as you go through life and you get jaundiced, um she realized that they blocked the sun and they rained on everyone. And then, she essentially through three verses uh switched from clouds to love and then became jaundice and love and then switched to life and life happens and tragedy happens”
Olin Corporation, despite having limited reinvestment opportunities in its underlying chemical/industrial business, has effectively deployed capital by reducing its share count from 165 million to 115 million shares over 5-6 years by repurchasing stock at very cheap prices, which is appropriate shareholder value creation even though it doesn't expand the business.
“Olin is a really good case but the case in point, there's no reinvestment opportunity in that business. And in the last five, six years, they've taken the share count down from 165 million shares to 115 million shares. And they've bought the stock in at at very, very cheap prices. And so, that's a great use of capital even though they can't reinvest at the stated return on equity of the business”
Meredith's portfolio trading at 12x earnings at the end of Q1 2025 (up from 10x at end of 2024) has generated 42% returns in 2024 and was up 12-13% in the first two months of 2025, then lost money for three weeks straight in late February, and recovered to be up 6-8% by the time of this recording, while the market experienced the same drawdown but has recovered to be up only 4-5% for the year.
“it's company by company, but when you roll it up with a portfolio today that's trading at at 12 times earnings up from 10 times earnings over a year ago. I mean, at the end of 2024, uh we were 10 times earnings and we made 42% last year return. Uh we were up, I don't know, the first 2 months of the year, February 20th, we were up 12 or 13% and then for 3 weeks straight, we lost money every day. And I don't we're now up six or seven or eight percent, but the market which was negative when we were up 12 or 13 has made a huge recovery and it's up four or five”
Semper expects to continue managing money for the foreseeable future and hopes to do so 'like Charlie did 34 days shy of his 100th birthday,' but acknowledges the fragility of life and is already seeing signs (difficulty reading digitally, concern about eye health from screens) that might eventually necessitate retirement, similar to Warren Buffett's decision to step down at age 95.
“My working assumption, knock wood, is I'll do what I do... in a perfect world I can go out like as Charlie did 34 days shy of his 100th birthday in a pine box or I get to the point where I'm 95 and it's difficult to read. And so, you decide to retire as Warren did last year. I mean, I just had our folks start sending me a lot more paper copies of annual reports. I find myself reading too much digitally... I'm kind of terrified of You know, I I having played football for a lot of years, kind of abused the body.”
Meredith holds Berkshire in his taxable accounts and relies on never paying a dime of tax through a combination of: never receiving dividends (preferring buybacks), counting on the government not changing the tax code, and counting on receiving a cost basis step-up at death—so he opposes regular dividends but would accept a special dividend.
“I own Berkshire in our taxable accounts and I don't want to pay dividend taxes on my investment. I mean, my shares that I own in my taxable accounts, I'm banking on the government not changing the tax code and I'm banking on getting a cost basis step up at my death. And I'm banking on never paying a dime of tax because they don't pay me a dividend. But they've got to be able to reinvest it some hurdle rate”