[dominotw]

> I didn't say the same size, I said finite size.

Not sure how you are defining "market". How is it finite size? What is the number after which it stops growing?

> If the market grows at a rate of 6% and your company is growing at 8%

Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all. Not sure where you got your your "market size" numbers from. Did you do an actual analysis of market size growth or are you just pulling these theories out of thin air.

[rsj_hn]

> Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all.

Right because Berkshire stopped overperforming. In fact it has been underperforming the last 10 years, and Buffet was trying to explain why. https://investorplace.com/2020/10/berkshire-hathaway-stock-u...

But what what I was doing was explaining a counterfactual to show why every firm must stop outperforming. It's not just Berkshire, or 6%, 8%.

So I ran some numbers to explain to you how if A is part of B than the compound growth rare of A cannot forever be greater than the compound growth rate of B.

(Please do not reply to this comment with an argument that you are not talking about any stock called "A" and "B", just as the 6/8 seems to have tripped you up)

Berkshire is part of the market, thus it cannot outperform the market forever. In fact you expect reversion to the mean -- companies that outperform then underperform and vice versa. Why is there reversion to the mean? Because the special techniques discovered by the company are copied and disseminated, key people are poached, ideas that used to work reliably stop working, etc. So these social constraints kick in long before mathematical constraints, but even if in theory you can overcome the social constraints, you can never overcome mathematical constraints, and thus Berkshire and all other investment holding companies must eventually stop overperforming, and most only eek out a few years of net overperformance.

[dominotw]

> Berkshire is part of the market, thus it cannot outperform the market forever. In fact you expect reversion to the mean -- companies that outperform then underperform and vice versa. Why is there reversion to the mean? Because the special techniques discovered by the company are copied and disseminated, key people are poached, ideas that used to work reliably stop working, etc. So these social constraints kick in long before mathematical constraints, but even if in theory you can overcome the social constraints, you can never overcome mathematical constraints, and thus Berkshire and all other investment holding companies must eventually stop overperforming, and most only eek out a few years of net overperformance.

Understood. Thank you!

Now I wonder why brekshire investors keep holding the stock. Shouldn't the stock crash and burn. What is their logic ? Sunk cost bias?

[rsj_hn]

You are assuming that there is no such thing as a "rate" of growth. Things are either growing or not. Thus if the market is "growing" at 6%, then it's OK for a member of the market to double in size every year because both are "growing" and aren't "fixed".

Numbers matter here, you cannot have one member of the market grow at a faster rate than the market forever.

Not sure what else I can do to explain this more clearly. Try using a spreadsheet or calculator to work out some examples for yourself.