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Analysis Of Berkshire Hathaway's Performance Compared To Perception That BRK Has Trailed The S&P 500

|Includes: BRK.A, Berkshire Hathaway Inc. (BRK.B)

Data on BRK's performance since 2000.

I describe six factors explaining the relative performance.

The perception is wrong: Berkshire Hathaway and Buffett are remarkable value investors.

  • Berkshire performance is strong when looking at 1,3,5,10,15 year time frames. Berkshire’s market price has only been negative four times since 2000, the same as the S&P 500. BRK has outperformed the S&P500 with dividends 11 times and trailed six times. Book value has only failed to grow twice, in 2001 and 2008 - the dotcom bubble and financial crisis/great recession. Performance is stronger than some realize. Market performance has been greater than book value recently and about equal over the long-term.
  • Berkshire Hathaway’s large size makes it harder to grow by large percentages. Its size combined with Buffett’s investor temperament has shown to be an advantage during times of crisis.
  • People who solely focus on returns often miss concepts like BRK’s lower risk. What risk was borne by BRK versus the S&P500 the past few years? Berkshire has a lower Beta, currently about 0.8.
  • BRK holds a mountain of cash, so this will create a drag during trending up markets. Cash drag.

  • Industry concentration and exposure in slower growth industries - insurance/banks, utilities, and transportation. Using 2016’s operating results and SPDR industry performance I created a blended expectation of BRK’s results. I used IVE, the S&P 500 value index to approximate BRK’s investment gains and performance. This analysis is not perfect as I am using a static industry exposure based on 2016 instead of the actual weightings from each year, but I think is indicative of industry factors.
  • Value investing has trailed in the last decade as seen when comparing IVV and IVE. But the results of BRK versus IVE is stronger, so Berkshire is a better value investor than the index.

Disclosure: I am/we are long BRK.B.