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Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

59 points by bcg361 3y ago

cushpush 3y ago
Shows you the power of compounding successful interest early.
Cpoll 3y ago
But if Berkshire didn't exist, would the stock market have performed the same way?
jjeaff 3y ago
funny thing is, it was probably about 10 years ago or more that he made a bet that no active manager could beat the market.
- RishitJain 3y ago
  And he won that bet.
  - jjeaff 3y ago
    Yep. And I should clarify, in case anyone does some checking. He didn't bet that NO active managers would beat the market. Just that no one could pick which active managers would beat the market but it will be random, and inconsistent.
TheAlchemist 3y ago
As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface when they describe the speech he gave in 1999, about stock market levels and valuations. Mind blowing, knowing what happened later.
- goodbyesf 3y ago
  > As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: The beauty of financial 'journalism'. They choose arbitrary points of comparison to fit whatever they are trying to 'sell'. Wonder why 20 years and not the past 21 years or 25 years or 30 years? > - stock market returns were abnormally high for the past 15 years Which was expected since we had QE and low rates for much of the past 15 years. > Mind blowing, knowing what happened later. Sure. He also said everyone should buy when the markets were collapsing in 2008 ( aka when there is blood on the streets ). And that was great advice as well. But Buffet's problem is that he discounts tech. He famously chose not to invest in microsoft because he didn't understand software and technology.
  - habitue 3y ago
    Buffett has a huge investment in apple. The tech comment is outdated
    - xbmcuser 3y ago
      Despite that he is still underinvested in tech looking at how big a portion tech is now of the S&P 500. Mostly because he does not understand it if he did according to his own rules he would have even larger investments in tech.
      - shapefrog 3y ago
        Apple stock currently represents nearly 40% of Berkshire Hathaway's equity holdings.
      - rewmie 3y ago
        > Mostly because he does not understand it (...) What leads you to believe that he doesn't understand it? I mean, how many tech companies failed/are failing badly? It's easy to single out Microsoft as an example of a success story, but it's even easier to pick failure stories. Perhaps Warren Buffet does well smelling out those?
jjtheblunt 3y ago
Does that table in the article not compare Buffet's share values vs S&P shares value plus their dividends?
- RishitJain 3y ago
  The table shows total returns (including dividends) for both BRK and SPX.
RantyDave 3y ago
I get completely different numbers (although the tldr is no less alarming). Does someone want to check my work? https://gist.github.com/RantyDave/41ac164cfcf527a91d3b97c8dd19ed3c https://gist.github.com/RantyDave/41ac164cfcf527a91d3b97c8dd...
- deleted 3y ago
  [deleted]
- shapefrog 3y ago
  In your print statement ... (berkshire_return/100)*(1/10)-1:.4f ... gives the annualised return (assuming start with 100 and 10 years). That brings you into alignment with the article.
Detrytus 3y ago
So it seems that Buffet, ironically, does not follow his own advice of simply buying an ETF and holding it. Also, I know some "celebrity traders" in Poland who advertise their IKE (think of it like a Polish version of Roth IRA account), where out of 170,000 PLN cash savings over 10-12 years they can get 1,800,000 PLN (for the average return of 37% per year) - how's that for beating the market?
- blagie 3y ago
  That's not very hard in an economy which has grown as quickly as Poland's. Find another country which will have the same growth for the next 20 years, invest there, and you'll see similar results.
  - red-iron-pine 3y ago
    Africa... maybe. Not a lot of Nigerian ETFs, and where there are, they're heavily tilted towards foreign companies like Nestle or US oil.
  - Detrytus 3y ago
    Poland's economy is booming, but the Polish stock market is not. I mean, it peaked in 2007/2008, and hasn't been able to beat that All Time High since. https://stooq.com/q/?s=wig20&c=20y&t=l&a=lg&b=0 https://stooq.com/q/?s=wig20&c=20y&t=l&a=lg&b=0
    - blagie 3y ago
      One of the problems is that for smaller economies (including Nigeria, below), investing requires local knowledge. A US index fund will roughly track the US economy. The 20 largest local companies in Poland? Not so much. In other words, it's a place for active trading. Investing in the former Soviet companies at the time of the collapse of communism would have been a bad bet (but reflected in the WIG20). Investing in the startups displacing them? Great bet. Real estate too. Having Polish land valued at a tiny fraction of German land in 1990 was clearly not long-term sustainable. My expectation is that the Polish per-capita GDP will reach that of Western powers in at most a decade or two, which gives a natural 4x return over baseline. It's not the astronomical return of post-Soviet era, but it's still large. In other words, smaller economies are a good place for active trading. I don't do it since if I did without local knowledge, my returns would be similar to the 1x of the WIG20, rather than the 10x of active traders in Poland.
danw1979 3y ago
From the data in the article, the underperformance has really set in during the last 6 years. It’s a progressive decline. Pandemic market distortion maybe ? Warren and Charlie just getting long in the tooth and slowing down ? Are the up-and-coming managers at BH (are there any ?) calling more of the shots and getting it wrong ?
- RishitJain 3y ago
  More likely a result of the size of BRK. At over $700 bn, there are few investment opportunities that can really move the needle.
toomanyrichies 3y ago
Berkshire's huge pile of cash is more than likely the reason for the latter-day under-performance. In its early years, its cash pile was obviously much more modest, and it was easier to find opportunities which would fit Buffett's investment criteria while also moving the needle from an ROI standpoint. But now that cash pile has grown substantially. It's orders of magnitude harder to find investments which move a $100 billion needle, and Buffett is unwilling to lower his standards such that he can find businesses to spend his cash on. Hence Berkshire has little other choice but to park its un-deployed assets in relatively low-performing but liquid accounts, ready to invest if needed but otherwise not doing much for the bottom line in the meantime. TL;DR- Berkshire may be a "victim" of its own success.
- achillesheels 3y ago
  I think this demonstrates the preciousness or scarcity of good books of business in public equity markets. Those with good long-term forecasts and not “get rich quick” exits over the last two decades.
- PH95VuimJjqBqy 3y ago
  I think it also needs to be mentioned that he most likely isn't taking large risks, so the rewards are smaller but the risks are smaller as well. I know that's essentially what you were saying, I just wanted to clarify it a bit.
- RishitJain 3y ago
  Precisely.
francisofascii 3y ago
Anyone with a well balanced portfolio of asset classes lost to the "market", which I suppose we mean the S&P 500. Bonds prices were killed the last year or two. I would argue the S&P, being about 25% tech stocks, is not as diversified as people think. Tech did great the last 20 years, and maybe they will continue. But it is risky to JUST invest in the S&P.
- RishitJain 3y ago
  The longer you stay invested, the less risky it becomes. Following is the percentage of periods that earned a positive return in the stock market, for different holding durations: 1 day: 52% 3 months: 61% 1 year: 68% 3 years: 75% 5 years: 80% 10 years: 88% 20 years: 100%

59 points by bcg361 3y ago

cushpush 3y ago

Shows you the power of compounding successful interest early.

Cpoll 3y ago

But if Berkshire didn't exist, would the stock market have performed the same way?

jjeaff 3y ago

funny thing is, it was probably about 10 years ago or more that he made a bet that no active manager could beat the market.

RishitJain 3y ago
And he won that bet.
- jjeaff 3y ago
  Yep. And I should clarify, in case anyone does some checking. He didn't bet that NO active managers would beat the market. Just that no one could pick which active managers would beat the market but it will be random, and inconsistent.

TheAlchemist 3y ago

As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface when they describe the speech he gave in 1999, about stock market levels and valuations. Mind blowing, knowing what happened later.

goodbyesf 3y ago
> As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: The beauty of financial 'journalism'. They choose arbitrary points of comparison to fit whatever they are trying to 'sell'. Wonder why 20 years and not the past 21 years or 25 years or 30 years? > - stock market returns were abnormally high for the past 15 years Which was expected since we had QE and low rates for much of the past 15 years. > Mind blowing, knowing what happened later. Sure. He also said everyone should buy when the markets were collapsing in 2008 ( aka when there is blood on the streets ). And that was great advice as well. But Buffet's problem is that he discounts tech. He famously chose not to invest in microsoft because he didn't understand software and technology.
- habitue 3y ago
  Buffett has a huge investment in apple. The tech comment is outdated
  - xbmcuser 3y ago
    Despite that he is still underinvested in tech looking at how big a portion tech is now of the S&P 500. Mostly because he does not understand it if he did according to his own rules he would have even larger investments in tech.
    - shapefrog 3y ago
      Apple stock currently represents nearly 40% of Berkshire Hathaway's equity holdings.
    - rewmie 3y ago
      > Mostly because he does not understand it (...) What leads you to believe that he doesn't understand it? I mean, how many tech companies failed/are failing badly? It's easy to single out Microsoft as an example of a success story, but it's even easier to pick failure stories. Perhaps Warren Buffet does well smelling out those?

jjtheblunt 3y ago

Does that table in the article not compare Buffet's share values vs S&P shares value plus their dividends?

RishitJain 3y ago
The table shows total returns (including dividends) for both BRK and SPX.

RantyDave 3y ago

I get completely different numbers (although the tldr is no less alarming). Does someone want to check my work? https://gist.github.com/RantyDave/41ac164cfcf527a91d3b97c8dd19ed3c https://gist.github.com/RantyDave/41ac164cfcf527a91d3b97c8dd...

deleted 3y ago
[deleted]
shapefrog 3y ago
In your print statement ... (berkshire_return/100)*(1/10)-1:.4f ... gives the annualised return (assuming start with 100 and 10 years). That brings you into alignment with the article.

Detrytus 3y ago

So it seems that Buffet, ironically, does not follow his own advice of simply buying an ETF and holding it. Also, I know some "celebrity traders" in Poland who advertise their IKE (think of it like a Polish version of Roth IRA account), where out of 170,000 PLN cash savings over 10-12 years they can get 1,800,000 PLN (for the average return of 37% per year) - how's that for beating the market?

blagie 3y ago
That's not very hard in an economy which has grown as quickly as Poland's. Find another country which will have the same growth for the next 20 years, invest there, and you'll see similar results.
- red-iron-pine 3y ago
  Africa... maybe. Not a lot of Nigerian ETFs, and where there are, they're heavily tilted towards foreign companies like Nestle or US oil.
- Detrytus 3y ago
  Poland's economy is booming, but the Polish stock market is not. I mean, it peaked in 2007/2008, and hasn't been able to beat that All Time High since. https://stooq.com/q/?s=wig20&c=20y&t=l&a=lg&b=0 https://stooq.com/q/?s=wig20&c=20y&t=l&a=lg&b=0
  - blagie 3y ago
    One of the problems is that for smaller economies (including Nigeria, below), investing requires local knowledge. A US index fund will roughly track the US economy. The 20 largest local companies in Poland? Not so much. In other words, it's a place for active trading. Investing in the former Soviet companies at the time of the collapse of communism would have been a bad bet (but reflected in the WIG20). Investing in the startups displacing them? Great bet. Real estate too. Having Polish land valued at a tiny fraction of German land in 1990 was clearly not long-term sustainable. My expectation is that the Polish per-capita GDP will reach that of Western powers in at most a decade or two, which gives a natural 4x return over baseline. It's not the astronomical return of post-Soviet era, but it's still large. In other words, smaller economies are a good place for active trading. I don't do it since if I did without local knowledge, my returns would be similar to the 1x of the WIG20, rather than the 10x of active traders in Poland.

danw1979 3y ago

From the data in the article, the underperformance has really set in during the last 6 years. It’s a progressive decline. Pandemic market distortion maybe ? Warren and Charlie just getting long in the tooth and slowing down ? Are the up-and-coming managers at BH (are there any ?) calling more of the shots and getting it wrong ?

RishitJain 3y ago
More likely a result of the size of BRK. At over $700 bn, there are few investment opportunities that can really move the needle.

toomanyrichies 3y ago

Berkshire's huge pile of cash is more than likely the reason for the latter-day under-performance. In its early years, its cash pile was obviously much more modest, and it was easier to find opportunities which would fit Buffett's investment criteria while also moving the needle from an ROI standpoint. But now that cash pile has grown substantially. It's orders of magnitude harder to find investments which move a $100 billion needle, and Buffett is unwilling to lower his standards such that he can find businesses to spend his cash on. Hence Berkshire has little other choice but to park its un-deployed assets in relatively low-performing but liquid accounts, ready to invest if needed but otherwise not doing much for the bottom line in the meantime. TL;DR- Berkshire may be a "victim" of its own success.

achillesheels 3y ago
I think this demonstrates the preciousness or scarcity of good books of business in public equity markets. Those with good long-term forecasts and not “get rich quick” exits over the last two decades.
PH95VuimJjqBqy 3y ago
I think it also needs to be mentioned that he most likely isn't taking large risks, so the rewards are smaller but the risks are smaller as well. I know that's essentially what you were saying, I just wanted to clarify it a bit.
RishitJain 3y ago
Precisely.

francisofascii 3y ago

Anyone with a well balanced portfolio of asset classes lost to the "market", which I suppose we mean the S&P 500. Bonds prices were killed the last year or two. I would argue the S&P, being about 25% tech stocks, is not as diversified as people think. Tech did great the last 20 years, and maybe they will continue. But it is risky to JUST invest in the S&P.

RishitJain 3y ago
The longer you stay invested, the less risky it becomes. Following is the percentage of periods that earned a positive return in the stock market, for different holding durations: 1 day: 52% 3 months: 61% 1 year: 68% 3 years: 75% 5 years: 80% 10 years: 88% 20 years: 100%