Berkshire Hathaway, Warren Buffett’s investment company, has been lagging the S&P 500 for a decade. But in the long run, Buffett still beats the index with ease.
Has Warren Buffett Lost His Magic Touch? The investment guru certainly didn’t do badly with Berkshire Hathaway in the 2010-2020 decade, returning 355%. But it was much lower than the S&P 500 index, which came in at 443%. An underperformance of almost 90%. So no recommendation for the maestro. Has Buffett – at 91 – lost his sense of the market?
It just depends on how you look at it financial advisor Blair duQuesnay from Ritholtz Wealth Management. She points out that Buffett has been written off before. In the late 90s, when everyone was talking about the new economy, which a fossil like Buffett didn’t understand. He also thought so himself. He only invests in companies he understands; a good rule of thumb.
Between 1996 and 2000, Berkshire Hathaway rose 57% in value, but it was nothing compared to the S&P, which gained 143%. The difference was in the growth stocks, of which Buffett had much less in his portfolio.
20% long-term return
IT shares plummeted by tens of percentages in the following years. For the Nasdaq, it would take until 2015 to surpass the old high of 2000. And what did Buffett’s portfolio do? It fired up nicely. Between 2000 and 2010, Berkshire stock rose nearly 80%, while the S&P lost nearly 10%. Buffett was suddenly king again.
The fact is that Buffett and his associate Charlie Munger have a track record of more than 50 years with investment company Berkshire Hathaway. The company has been around for some time, but was first a textile company.
During that period, they achieved an average return of 20% per year. The S&P 500 is no more than an average of 10%.
No guarantee for the future
According to DuQuesnay, it proves that there are major differences between strategies in the short and medium term. Sometimes one works, other times the other.
“What worked yesterday is likely to be out of favor tomorrow. And neither of these things means it is a good or a bad investment strategy.”
DuQuesnay believes a fund manager’s strategy is more important than returns over the past few years. According to her, it is especially important for an investor to choose strategies that he believes in and that he can stand behind even in bad times. Buffett has shown that this works.
Also read: 5 Warren Buffett Stocks to Watch List
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