Archives for January 15, 2018

Berkshire Hathaway vs. S&P 500: Shrinking Edge?

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It is well-known that the CEO of Berkshire Hathaway (BRK) is Warren Buffett, and that its long-term performance has crushed the S&P 500. This is usually illustrated with an impressive chart like this one from Business Insider:

brkvsp500_bi

I’m currently reading A Man for All Markets by Edward Thorp. Among his many impressive accomplishments, Thorp even managed to be an early investor in Berkshire Hathaway. However, an ongoing theme in the book is that edges don’t last forever. He includes a chart in his book about how the performance gap between BRK and the S&P 500 has narrowed over time (I added the pink highlighting):

brkvsp500_red

The book states that the dates were chosen when “the price graphs suggested that they were natural divisions”. Now, even Warren Buffett and Charlie Munger have stated upfront that future returns for Berkshire will be much more modest than in the past. Their current asset size is simply too large. Of course, they still maintain they’ll do just fine, otherwise they’d just give up (or at least pay a dividend). It will be interesting how their edge holds up in the future.

Disclosure: My investment portfolio is predominantly invested in indexed and low-cost funds, but I do hold some Berkshire Hathaway shares in my 5% “play money” portfolio of individual stocks and marketplace real-estate investments. I still want to go to a BRK shareholder meeting in Omaha one of these years.

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