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Berkshire Hathaway Versus The S&P 500 Through The Years

John Rhodes profile picture
John Rhodes


  • Easy money appears to have harmed Berkshire Hathaway's stock price returns over many years.
  • Investors need to look back 20 years to see Berkshire Hathaway clearly outperforming the S&P 500.
  • Warren Buffett has made it very clear that the S&P 500 is a very rational way to invest; written proof provided.
Warren Buffett And BofA CEO Brian Moynihan Speak At Georgetown University
Photo by Drew Angerer/Getty Images News via Getty Images


Buffett continues to be in a tough spot. We start with two reasons.

The first issue is that Buffett is pushing up against his cash hoard. He's holding too much money, and he's going against his words. From the 2017 Annual Meeting, he

This article was written by

John Rhodes profile picture
I am an investor, entrepreneur, father, husband, coach and teacher.

Analyst’s Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (257)

Great Article, and fair. Berkshire has an advantages that can also be noted. Berkshire pays no dividends so you pay no tax on its appreciation unless you sell. 40% of The small dividends (1.3%) that SP500 pay go to taxes, not me. So I have to discount sp500 returns about 0.5% every year. I buy BRK instead of SP500 for any money that i might give to charity or my inheritors. If in fact i do give that money away, then no one ever pays that tax.
six profile picture
@cabbottmd People that hold the SP500 through funds in a tax deffered account pay no taxes on the divided.
Briar profile picture
Shareholders with decades of ownership in a taxable account have as much as $100,000 in deferred taxes working for them. At 10% that amounts to an extra $10,000 a year–nothing to snivel at. In a retirement account the amount deferred will depend on one’s marginal earned-income tax rate at withdrawal.
AuCoaster profile picture
Tax deferred dividends will be taxed at ordinary income tax rates at withdrawal, and the tax will apply to the full amount withdrawn, principal, dividends and gains. True for BRK or other investments in tax deferred accounts.

In taxable accounts BRK is more tax efficient than stocks paying dividends, as the gains will only be taxed when sold, and eligible for long-term capital gains rates.
This is one smart author. Investing alongside other Berkshire shareholders is savvy.
Kyle Fishman profile picture
@cegibbs Berkshire underperformed the S & P 500 over the past 18 years.
@Kyle Fishman Why should I care since my wife and I have owned shares since 1978. It has completely trounced the S&P500 over that time period with less risk.
@cegibbs Yes. And you have paid no tax on any appreciation/profits which are all compounding. Further, if you ever keep those shares it will go tax free to your heirs or charity.
Baba_Saltzman profile picture
@achilleus thanks you so much for your kind support its always wonderful to have gulled gentleman on the other side of my trades please do put your money in based on your wishes its so much more fun that investing based on research

when the markets open tomorrow go all in back up the truck and use all your dry powder hit the bid in volume
achilleus profile picture
@Baba_Saltzman there wasn't any support in any of that. i don't care for condescending endearments and nor do lots of others on here.
I will certainly examine the markets, and everything else I look at, without any reference whatever to your conversation.
Briar profile picture
@achilleus She comes closer to Seeking Omega than Seeking Alpha.
achilleus profile picture
@Briar lol

i don't care really, what she thinks. may she earn her $100!

i just don't ever care for anything condescending. it's puerile
Long BRK.B for years, added to positions in 2020 & 1.2021.

Think of think in absolute not relative terms, and think of returns in dollars not percentages.

Long term few investments beat this core holding. Structural advantages have been leveraged by WB creative & forward thinking into the intrinsic value of BRK.B for decades.

Have both WB & Charlie lost a step or two? Yes. Selling Apple 🍎 was a boneheaded move, and when the Fed stepped in to be the lender of last result, the price discovery practice of identifying mis-priced securities during the Covid Plandemic went out the window! WB should have repurchased $100B of BRK.B stock. This basic move would have helped to maximize shareholder value, and still left the company with over $40B of dry powder!

Hindsight is 20/20.

As a safe & risk adjusted core holding, I project a 8-12% un-leveraged return stream, with a less volatile path than most alternatives.

In short, respect the past, but be honest about the future. Markets will be much more volatile in the next two decades and the massive amount of sovereign debt in the system is beyond belief!

What would my strategy be for the next 25 years now? Well, assuming I have the managerial horse power to “run”, given they missed the attractive “buyback window”, I would further leverage the B/S to take full advantage of the pending carnage! The Fed will no long be able to blindly backstop high yield & corporate credit. These markets are not functioning and absent of price discovery, yield massive opportunity to “take turf “...

Securing low, sub 4%, fixed 30-year debt financing provides a negative net after tax real cost of capital to go shopping 🛒 🛍 .

Shareholders may then be more willing to forgive the poor portfolio moves and Covid Repurchasing “layup” that WB missed last year!

In closing, read the tea leaves 🍁 in what the future global banking system looks like!!!

Hint: it’s not pretty, it’s alarming!
Kyle Fishman profile picture
@BaAuH2O BRK has lagged SPY over the last 18 years or so.
(when you include reinvested dividends.)
(source: drip calculator on dividendchannel.com)

"Long term few investments beat this core holding" --- is 18 years not considered "long-term" in your book?
Briar profile picture
@Kyle Fishman Hindsight has a present value of zero. Year to date, Berkshire is up 24% compared to the S&P’s 11%. It won’t take much more before your 18-year comparison looks dated.
AuCoaster profile picture
In recent decades BRK has been a middle of the pack, slightly above average performer.

Buffett's glory days were long ago. His reputation has endured much longer than his performance that earned the reputation.
capitalallocator profile picture
While evaluating performance, risk should also be considered. When the pandemic hit in 03/2000, it was clear to me that Berkshire is a safer parking spot. It has worked out fine with BRK.A going up $ 1000s a day....
Baba_Saltzman profile picture
@capitalallocator thats nice dear but $BRK sells for over $400000 a share so your measly 1000 is like couple of basis points you'd germ more with bank cd the risk is that warren is asleep at the switch or he's forgotten where the trading tickets are
AuCoaster profile picture

BRK is up by more than 70% since March of 2020.
This is obviously far better than any bank CD.
Baba_Saltzman profile picture
@AuCoaster thats true dear when you choose the low point of the markets when the pandemic started and tote up the appreciation to now the return does beat a cd

too bad buffett didn't buy a thing in march of 2020 he left his money in t-bills earning less than a bank cd he didn't even buy his own $BRK
I regularly laugh at the concept, the thought BUFFET LIKE. Reality, Buffet looses 45 million and declares that was a mistake. If, I was to loose 45 million a lot of people would wonder how they could have been STUPID enough to LEND me that much money. Then the comments by Buffet that he buys for long term.
Does Buffet have a different actuarial table then the rest of us? The man is almost 90 years old. Buffet does not even buy in the same market where we unwashed masses shop. Berkshire hathaway. Buffet has to announce he is buying xyz. All the bait fish saying they are Buffet like follow him in. As happened with IBM. The stock goes up. Buffet decides to sell. He sells high
and those who follow him loose far higher percentage than Buffet did.
Ako Ake profile picture
@SUE2 investments are always relative to size. What’s 45M in a huge investment portfolio ? Minuscule!! Nothing to worry about unless this mistake is repetitive , which to date is not the case. Age of WB does not come into the equation at all. He has enough experience and discipline for his age not to interfere.
Briar profile picture
@Ako Ake I agree. Would you rather own a company where the CEO is thinking about his or her age or thinking about the perpetual life of the company, which would include the lives of all shareholders, and then some? Warren Buffett, not Buffet, has put a lot of time into structuring Berkshire for a life after him. Misspelling his name nine times reveals a lot about the commenter.
Baba_Saltzman profile picture
@Briar spelling is important dear and warren has been having a bad spell for the last 10 years so its time for him to hang it up and let that nice canadian boy sell of the losers and give some money back to the shareholders

charlie has already left the building going back to being a divorce lawyer for bill gates wonder if he munches sees in the courtroom
Paul T. Lambert profile picture
These kinds of charts are quite enlightening: They show mainly that Buffett's approach worked well in the past, even to the point of still outperforming if you happened to invest decades ago. However, he has clearly lost his oracular powers within the last decade or so.

As some say, perhaps he has stuck to traditional things he understands and hasn't kept up with exponential progress in technology and the rapidly changing world. This might be evident in his partner's commentary about hating bitcoin's success because it's a disgusting product coming out of thin air.
@Paul T. Lambert Re: bitcoin. I am not buying it either. It is a classic ponzi scheme. Look it up you might be shocked. We are told it was created by Satoshi Nakamoto. No one knows who or what that is. Man, woman, a group-no one knows. Some scream the dollar is now just printed paper. While it may be of depreciating value due to our politics and our fed, the dollar is based on the full faith and credit of the United States. Bitcoin is backed by NO ONE AND NOTHING.
Paul T. Lambert profile picture
@SUE2 I doubt I can add much to the never-ending argumentation between bitcoin lovers and haters, but I recently came across an interesting reason to own bitcoin: It's fun! That is, you can buy a little bit and participate in the rollercoaster ups and downs, feeling like you're part of the new era and all that. This can also be sort of a cure for the hate and disgust many people feel because of missing out and considering the whole thing to be complete nonsense and garbage.
capitalallocator profile picture
@Paul T. Lambert He thinks "Tech. companies do not have a permanent competitive advantage". He has a high bar. He has McDonald's Breakfast every working day but still does not feel it has a permanent competitive advantage. -Hence has never bought the stock-
TheBaron Investing profile picture
If it wasn't for the chance (but not guarantee) of a secular decline following a massive one-day decline on Buffet's death, the way to play this would be to use leverage.

Berkshire owns a bunch of value companies that do not need to worry about the market mispricing them. Combined with the insurance business, you have an already leveraged portfolio of businesses with a built in following of investors who like the stock and the willingness of its owners to shore up the price with buybacks.

I also don't like the insurance business, so for those reasons I would not. But if you want to generate stronger returns on a low risk company leverage is one way to do it.
Ako Ake profile picture
Certainly an anchor stock to hold in ones portfolio. I keep roughly 5% of portfolio in this well balanced stock.
BRK holds a large amount of cash.

It is hardly surprising BRK underperforms S&P500 given the cash generates no return. How has BRK excluding cash performed?

This cash gives ‘optionality’. When the crash comes BRK can buy in good quality assets at a bargain price.
AuCoaster profile picture
@UK Lawman

Bargains are nice. But, it takes huge discounts to make up for holding idle cash for a decade. Perhaps the next crash will be big enough to justify the loss of earnings on this idle cash.
Briar profile picture
@UK Lawman Your accounting is off: Berkshire does not have 10% of its net worth in cash; its 10% of total assets. The cash roughly equals insurance reserves, which means this ‚float‘ is currently producing no added value to net worth.
@UK Lawman Forgive my seeing what others seem not to. Aside, I took many tests. I scored in the 99.999999 percentile for seeing relationships.
I am also in the 5% of people that cannot be hypnotized. I've had many try. I regularly wonder why others do not see what is obvious to me.
Investing we ALL do great if we only count investments we made money on and don't count any losers.. Unlike the US government I cannot pull money out of thin air. To buy an investment or anything else for that matter, I either need to have cash, sell something to buy it or borrow the money and pay the cost to borrow the money.
Unreal guys. Only one comment point out the fact that BRK has DESTROYED the SP500. And will continue to do so.

Forget the voting machine and get your weighing machines out. www.vltavafund.com/...

Also the 145 billion Cash is wrong, look at the balance sheet... 4.1 billion for T bill purchases.
John Rhodes profile picture

Great comment with some supporting data. I appreciate that. You’ve confirmed an idea from another commenter, namely that this is all from P/E expansion. That is:

“The collective earnings per share of the companies in the S&P 500 Index were $86.95 at the end of 2011 according to Standard and Poor’s. At the close of 2020’s first quarter, those earnings came to $117.01. That means that they surprisingly grew by only 35% during this long period of economic expansion. Earnings growth contributed only about one-quarter to the rise in the index. Three quarters of the gain in the index was due to expansion of the P/E from the initial 14.7× to the current 26×.”

This is why we appreciate Seeking Alpha.

Have a great night.
@John Rhodes Thanks for the reply, please read the link I copied from Vltava fund, it's a great write up. It's better for us that this little secret remains such. Buffett could have easily pointed it out at the meeting when discussing SP500 vs BRK but he chose not to for a reason. You never know when votes will change but weights remain the same.

six profile picture
BRK is VERY likely to underperform the SP500. It is very simple... BRK has too much CASH (at last count over 20% of the market cap value is in cash) and low rates create asset inflation that prevents Buffet from putting cash to work in meaningful amounts.

It is that simple...
Dale Roberts profile picture
Good post. Holding Berkshire Hathaway is a great hedge against a real stock market correction or a pandemic travesty (they would be related).

You get 'near market' returns and over $140 billion in cash in the right hands.

We are happy to hold. I am in support of Mr. Buffett's decision to not back up the truck during the uncertainly in the early stages of the pandemic. We were only saved by a miracle vaccine.

The headlines today were more likely to read ...

Drug makers say that COVID-19 vaccines are still 3-4 years away. Stock markets continue to fall.


We were saved by a miracle. The year 2020 investors were saved by a miracle. When they invested, they were counting on a miracle. At least near term.

This all ain't over yet.

six profile picture
@Dale Roberts

BRK is NOT a "hedge" against a broad market correction. BRK stock is MORE volatile than the SP500. When the market goes down so does BRK. Over the last 20 years BRK standard deviation is 16.48% vs. 15% for the SP500. The maximum drawdown of BRK is 45% vs. 50% for the SP500. This is not a hedge by any definition.

BRK has NOT provided "near market returns" over the last 18 years. In every rolling period since 2003 (except for 2006 when they were tied) the SP500 outperformed BRK. Do the math, BRK is not matching the market.
Obi Wan Kenewbie profile picture
@Dale Roberts, it wasn't a miracle vaccine. They didn't just start working on these vaccines in late 2019 or early 2020. COVID variations have been around for a long time and a number of labs had been working on identifying how to fight them for well over a decade. (Maybe that's the miracle--this was already in process, basically, and man did we ever need it to be so.) That's why labs were able to develop vaccines so quickly--there's a common misconception that it was "done in a year", but that's not at all the truth and maybe there would be fewer folks reluctant to take the vaccine if they understood that this was a long, intensive process, but it's one of several key messages that really didn't get out there and should've.
Dale Roberts profile picture
@Obi Wan Kenewbie It was a miracle, don't kid yourself. Even 4 years would have been a record.

Gpa Bui profile picture
In 2020, Warren sold lots of banks, airlines, Costco at the bottom. For me, I am very nervous about his calls. Therefore, I am getting out of brk and buying vfiax (vanguard Index 500) exactly as the oracle advise. 😂😂😂

The fed will keep rate super lo till 2022. Hard for brk to beat spy or vfiax
@Gpa Bui As Buffett said over the weekend and I've been saying for a long time they sold a very tiny percentage of their assets in the pandemic. The number he gave was around 1% of their total asset base, he wanted out of the airlines because they were in trouble and needed government money. I don't think he wanted to be a part of something like that nor did he want to shell out $25 billion to prop them up. The airlines were small investments for Berkshire and they were already heavily exposed to air travel through Precision Castparts. It gets talked about way too much, the entire airline industry is worth less than Berkshire's investment in Apple, it's probably worth less than the BNSF is as well. On the banks they wanted less exposure to banks and sold off their holdings added to BAC. They still hold probably $50 billion worth of bank stocks. They sold Costco but not at the bottom, that was sold towards the end of last year when prices were high.
@Gpa Bui

Have you looked at BRK’s stock chart lately? I’m not selling. I’m a buyer if it goes lower. In fact I’m also a buyer if it goes up.
Obi Wan Kenewbie profile picture
@John Rhodes,

Thanks for the article; BRK is experiencing interesting times, as are most of us. Two things I reacted to:

1. From this Buffet quote:

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

You come to the conclusion:

"In other words, Buffett believes in the power of the S&P 500."

I don't think that's the real meat of what Buffet is saying. The last clause shows that what Buffet is getting at is that high fees destroy value and if you choose to pay high fees, you won't beat a low-fee index fund. Fees of any kind are negative compounding, which is just as bad for your portfolio as positive compounding is good for your portfolio. Two sides of the same coin, it's just a matter of whether that coin stays in your pocket or goes into a manager's pocket. Each coin that the manager takes out of your pocket can't appreciate or earn dividends for you and that's is why Buffet recommends an index fund. (S&P 500 because what else is so diversified in one basket? He's keeping it simple for his heirs, but the real point is to avoid negative compounding as much as possible while maintaining simplicity.)

2. If Buffet buys back a bunch of his own stock every year going forward (not a bad investment and better than being in inflation-losing cash), that'll improve all the numbers. He bought back quite a bit over the last year and if that continues apace, at least shareholders will benefit from the increased business-value/share. Caveat is to only do it if there's nothing better to do with the cash, which seems to be the case at the moment.


-The Old Newb

@Obi Wan Kenewbie Sell in May and go away.......
six profile picture
@Obi Wan Kenewbie

1. Buffet meant EXACTLY what he said, which is buy the index. He knew he would end up in EXACTLY this situation- low rates inflate asset prices and he can't put cash to work... his cash builds up to the point it is mathematically impossible for BRK to outperform the SP500.
Obi Wan Kenewbie profile picture
@six Yes, Buffet is saying to buy the index, and we should understand the reasons why Buffet says to buy the index--lowest cost for third-party management plus simplicity--a combo that makes things easy for his heirs while reducing negative compounding as much as possible. The "why" is crucial if you want to understand what you're doing.

Also, he can put cash to work and he (or at least BRK) did put about $24 billion to work over the last year on buybacks. Some call it eating your own dog food, others drinking your own champagne. (Personally, I see BRK more as a decent wine that I don't mind serving to guests and am long BRK.)

Finally, I never said anything about whether BRK will outperform the S&P 500, so I'm not sure what point you're responding to--all I did was point out why Buffet is OK with the index and that there is an option to spend some of the cash (although not everyone is sanguine about buybacks). You can cherry pick all kinds of time frames to show BRK either outperforming or underperforming the index, same as with many stocks. If you know how to pick only stocks that outperform the S&P 500, you're ahead of everyone else on the planet.
Mountain Marmot profile picture
I have concern about the SPY, with its overweight of tech during a ~30 year secular decline in interest rates. For a comparative exercise, use the SA chart with BRK, SPY and equal weighted RSP.
@Mountain Marmot

Valuable input. Thanks!
Mountain Marmot profile picture
@A norwegian guy
An index of 500, with seven components making up ~20% of the index is great, if those five are having their day in the sun, day after day after day...
Unless you can get out at the right moment, it's way riskier than many passive investors understand.
Larry Hall profile picture
@Mountain Marmot Good point. And there is risk everywhere, and if the pessimists are right it could be a 'lost decade.' But still possible to make money with the right stocks imo.
CapVandal profile picture
Is the excess cash hoard a big problem?

1. Per Buffett at this years annual meeting, it is about 10% of assets.

2. He has not let it grow materially over the last 5 quarters. with buybacks roughly equivalent to GAAP operating earnings.

3. Cash reduces volatility, if nothing else. And BRK has lower beta than the market as a whole already.

4. Cash supplies optionality. Even though that optionality hasn't been very useful lately, it has in the past and might in the future.

I trust Buffett to not do something stupid with it. Future BRK management should not limit themselves to investing all cash in stocks and businesses, and should return excess cash either through buybacks or special dividends.

And, FWIW, his S&P recommendation was 90% index / 10% cash. So, maybe that should be the comparison, although that is putting too fine a point on it.

I could ramble on, but if BRK's cash seems like a big problem, buy something else.
Briar profile picture
@CapVandal Nice to read your comment. I think that the 90% index/10% cash ratio is devised to provide liquidity. Warren’s intent is to free his widow from all financial worries. A 90/10 ratio might not apply to all of us. It doesn’t to me and my wife. For years we have used varying levels of margin, at very low rates, to provide liquidity, not speculation.
Ellenindc profile picture
@John Rhodes...so like your articles, thank you. Since WB is my hero, I must mention survivor bias. The S & P replaces losers with winners continuously. Why? Pride in the index for those who make their living by it. What happens to losers? They are culled and disappear, Instead, the new entrant is added. In BH, there is some trading, but not to the degree of the Index. Since the Index is cap weighed, the effect can be impressive. There is only one index that is not weighted (as far as I know) and that’s the Value Line Index that is simply arithmetic. Frankly, it underperforms by a lot but it’s been a long time since I watched it regularly. WB needs no help from me because he’s probably spotted the bias already, hence his viewpoint. There are other factors that make the comparison illogical but I will just mention this.
six profile picture

Do you even know what the turnover the SP500 is?

It is about 4.4%... which is NOTHING in terms of portfolio turnover. Most mutual funds are well over 30%

If you want an equal weight sp500 index, Invesco offers RSP an equal weight ETF based on the SP500. Since it's inception in 2003, RSP has outperformed both the SP500 (though not by much) and BRK (by a decent amount).
Ellenindc profile picture
@six ...actually, you’re wrong, it’s more like 8% a year, but in 20 years it’s pretty churned. You are missing my point altogether, however.
six profile picture
@Ellenindc No, ACUALLY, you are wrong. Show me where you get 8% from.

Here are links that all say 4% or less.



Kyle Fishman profile picture
Buffett double-talks.

Sometimes he says he recommends the average investor buys the S & P 500,
read Berkshire's 2014 annual shareholder letter.
it says the following quote:
"Over the stock market cycle between yearends 2007 and 2013, we overperformed the S&P. Through fullcycles in future years, we expect to do that again. If we fail to do so, we will not have earned our pay. After all, you could always own an index fund and be assured of S&P results."

He DID say Berkshire would beat the S &P 500. and that quote didn't age well.
It's been lagging the S & P 500.
Briar profile picture
@Kyle Fishman Actually, if Buffett had used the top of the market in Oct. ‘07, instead of the end of the year, Berkshire would have hardly underperformed the index. Thru today it might even be positive. “Not aging well” has a different meaning for patient shareholders.
Son of a Brewmeister profile picture
@Briar very true and if the Oracle had put his 100 Billion into $TSLA and Bitcoin he would have made Trillions. Woulda shoulda coulda. What's not aging well is the fantasy of giving Buffett advice while you're standing in line buying stamps in the DC PO.
John, Great article and very interesting comparisons!

Interestingly I have held BRK for about 20 years so it has done well.

Regarding more recent years - "big tech" (FAAMG) has had a dramatic impact over recent years. In the 2008 timeframe, XOM was the most valuable company in the index. Now, the least valuable of big tech - FB - is worth about 3.5 times XOM - and for good reason. Big tech and other fast growing companies like Visa have really been a huge factor in driving the S&P. It is not surprising that the "old industry" of BRK has lagged. But it is still a great company. In my view big tech is not overvalued because the companies at the epicenter of colossal economic change deserve a rich valuation. But I also like some of the "old tech" companies. I am a dinosaur that uses Apple products-LOL!

Disclosure: Long FAAMG (big tech), BRK, XOM, Visa (indirectly) and others.

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