Alaric Securities celebrates at Nasdaq MarketSite
May 8, 2024 | Issue 62

Is Berkshire Hathaway Still a Market Beater

Nikolay Stoykov
Managing Partner at Alaric Securities
Warren Buffett, CEO of Berkshire Hathaway, a renowned figure in the investment world

BRK vs. S&P500: A Look at Recent Performance

Last weekend, Berkshire Hathaway had its annual shareholder meeting. Regarding shareholder meetings, BRK’s is an exception – it is more like a matinee than a shareholder meeting. Many retail investors go, or at the very least, tune in – seeking advice or guidance on Mr. Buffett’s thinking in the present markets. And why not – BRK’s historical performance, especially outperformance versus S&P500, is quite remarkable and exceptional; surely, Mr. Buffett deserves his nickname – “The Sage of Omaha.”

But is that still true –Mr. Buffett is a vibrant and energetic 90-year-old man, but how many 90-year-olds are still at the “top of their game” in any sphere? Could Mr. Buffett had been “The Sage of Omaha” rather than still being “The Sage of Omaha”?

The following calculations are taken directly from the 2024 Berkshire Hathaway Shareholder letter. From 1965 to 2023, BRK’s shareholders have realized a net return of 4,384,748% or 19.8% annually, while S&P500 investors have realized 31,223% or 10.2% annually.

A Closer Look at the Last 20 Years: BRK vs. S&P500

However, let’s narrow our focus to the most recent 20 years of history.

  BRK S&P500
2003 15.80% 28.70%
2004 4.30% 10.90%
2005 0.80% 4.90%
2006 24.10% 15.80%
2007 28.70% 5.50%
2008 -31.80% -37.00%
2009 2.70% 26.50%
2010 21.40% 15.10%
2011 -4.70% 2.10%
2012 16.80% 16.00%
2013 32.70% 32.40%
2014 27.00% 13.70%
2015 -12.50% 1.40%
2016 23.40% 12.00%
2017 21.90% 21.80%
2018 2.80% -4.40%
2019 11.00% 31.50%
2020 2.40% 18.40%
2021 29.60% 28.70%
2022 4.00% -18.10%
2023 15.80% 26.30%

Since 2003, BRK has returned 644% of its total return, or 10,55%, annually, while S&P500, including dividends, has returned 720% or 11,10% annually.

Indeed, BRK has nearly outperformed the S&P 500 by a factor of 2 since 1965; however, all of that outperformance occurred before 2003 when BRK was much smaller in terms of capital and Mr. Buffett was younger.

Factors Affecting BRK’s Performance: Size and Portfolio Composition

We are not necessarily trying to diminish Mr. Buffett’s accomplishments. In the annals of history, he will be considered one of the greatest investors ever. We are trying to say that Berkshire’s portfolios for the last 20 years have not outperformed the S&P500, and we think this will not change significantly in the future. There are many reasons why this is so, and the reasons do not necessarily reflect Mr. Buffett’s abilities.

One of the main reasons is size – Berkshire Hathaway manages nearly half a trillion dollars. While profitability or expected profitability of any position is an important consideration, in Berkshire’s case, the capacity or ability to allocate large capital to a trade becomes more important than the expected profitability of that trade.

The second reason is that Mr. Buffett usually keeps a large proportion of cash in his portfolio.  This is not necessarily of his own choice or lack of profitable opportunities but rather a function of being in the insurance business. Berkshire is an owner of one of the biggest insurance companies in the US -GEICO, and it needs to be sure it has access to large cash liquidity at any given time.

Berkshire Hathaway: More Than Just an Asset Manager

In other words, Berkshire Hathaway is not just an asset manager but rather a conglomerate, and its portfolios for at least the last 20 years have been constructed not necessarily to be optimal in terms of asset allocation but to be optimal in terms of the needs of the conglomerate Berkshire Hathaway. So, you can stop coping with Mr. Buffett’s trades or positions; he is unlikely to beat the S&P500 in the long run because he probably does not even aim to do that. And he certainly has not done that for the last 20 years.


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