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:


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):


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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  1. too bad they are so biased against cryptocurrencies…

  2. Thank you for your thoughtful post Jonathan. Your posts always give me ideas for further thought.

    The future performance is unlikely to be repeated mostly due to two factors:

    1) Size – when you are as big as the market, your returns will converge to it.

    2) Investments – when you buy stocks, it is ” relatively easier” to find something that is mispriced. When you buy the whole business, it is less likely that it will be “mispriced”.

  3. Jonathan! I made the mistake of following the link to your Personal Capital recommendation and inputting information and linking investment accounts. Within 10 minutes, I received a very poorly disguised email from “Fidelity” telling me that I qualified for a bonus life insurance. I am now quite concerned that I have compromised my retirement accounts…..

    • I appreciate your concern, but I’ve gotten spam emails from various companies calling themselves Fidelity or Amazon and offering free life insurance well before joining Personal Capital. I believe it is simply a coincidence. Why? Personal Capital is an SEC-registered RIA and manages billions of dollars in assets with human advisors. They have a business plan with a clear way to make profit. They aren’t an internet company that needs to sell your information secretly. However, if you still believe that Personal Capital instantly sells your information to spammers when you link an account, I would recommend you unlink your account and change your Fidelity password.

      • Yeah those phishing/spam emails are annoying but almost certainly unrelated (ie Jonathan didn’t feed you to a malicious entity). Personal Capital is aboveboard and used by a great many savvy people I know (and myself) without any ill effects other than the occasional email/phone call advertising their more hands-on services (which I believe they’ll stop if you ask them to).

        Of course Jonathan’s going to give you the conservative answer, and it’s true that you shouldn’t do anything you’re not comfortable with. But Personal Capital’s business model has little reason to involve selling your email address to nefarious entities.

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