Most proponents of indexing strategies don’t quite manage to implement a pure index approach. They often come close to pure indexing, but they can’t resist adding some sort of twist. The twist may be a form of market timing or some other active strategy. So far, the way I’ve handled my own portfolio is no different.
I’ve been on a steady transition from a pure stock picker a few years ago to about 70% indexed today. I intend to keep increasing this percentage, but I’m not sure that I’ll make it to 100%. Selling my last stocks will be fairly painless except for Berkshire Hathaway.
After having read all of Buffett’s old letters to shareholders and having held the stock for about 13 years, I’ve become attached and don’t want to sell. I’ve thought through many possible justifications for keeping it, but the only plausible one is that Berkshire is so diversified that it could be thought of as an index of a slice of the American stock market (plus some foreign holdings).
Another factor is that I can’t shake the feeling that Berkshire (BRK) is undervalued right now. There is no reason to believe that my judgement is any better than the market’s judgement when it comes to BRK, and I’ve managed to ignore my gut feelings about other stocks, but I’m stuck on BRK.
So, is there any validity to the argument that BRK is so diversified as to be index-like or am I just being emotional to the detriment of my expected future returns?