Don’t Beat Yourself Up, Warren Buffett

Jacob Harper  |

For the first time in 44 years, Warren Buffett’s venerated holding company Berkshire Hathaway ($BRK.A) failed to beat their self-imposed daunting benchmark, one that the majority of funds never meet: beating the S&P 500. From 2008 until 2013, Berkshire netted a valuation gain of 80 percent. A fine return for any company, let alone one as large as Berkshire. But during the same time frame, the S&P rose 126 percent, besting Berkshire by a sizable margin.

While Buffett made a few very smart moves from 2008 to 2013 – bailing out Goldman Sachs Group (GS) being a notable one – his smart plays didn’t fully overcome blunders like sinking heavily into International Business Machines (IBM) in 2011.

Granted, Buffett makes this return even harder to hit as he uses post-tax earnings when figuring out Berkshire’s returns, while relying on the S&P’s pre-tax numbers. But still, his disappointment is palpable. As early as March, Buffett knew he probably wouldn’t be able to reach his own goal, writing to investors that he was sure if the S&P continued rallying the benchmark would not be met.

In a market where only a handful of mutual funds on the entire market beat the S&P routinely, it’s pretty impressive that Berkshire has done so consistently since the 60s. But more than beating the index on a five-year basis, when looking at how the two have performed the dominance of Berkshire becomes even more pronounced.

Since January 12, 1990, or the date that Class A shares of Berkshire became available to the general public (they had previously been restricted to high-profile private investors) the S&P 500 has gained 420.14 percent. Aside from notable dips in the early 2000s (dotcom bubble) and a steeper one in 2008 (housing bubble) the index has performed admirably, to say the least, quintupling in value over that time period.

While the S&P rose significantly in value from 1990 through 2013, Berkshire did better. Way better. From the date Class A shares hit the open market until January 2, 2014, Berkshire’s shares gained a whopping 2,383.38 percent. While the S&P quintupled in value, Berkshire quintupled the S&P.

The gulf between the S&P and Berkshire becomes far more pronounced if you account for their history prior to 1990. As a US News and World report from 2008 showed (at the end of the last five-year tracking period), a $1,000 investment with Berkshire in 1956 would be worth over $30 million, as opposed to a relatively measly $180k return from the S&P.

Buffett has been hard on himself for not beating the five-year benchmark (although he did beat the S&P in 2013.) But for a company as large as Berkshire, it’s more than understandable. And their track record more than speaks for itself. In a market where beating the S&P, let alone quintupling it, is so difficult, Buffett can be forgiven for having an “off” five years where he merely nearly doubled value. 


(screen grabs courtesy of Google and Yahoo Finance, respectively)

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