Berkshire Hathaway CEO (BRK.A 0.77%) (BRK.B 0.86%) Warren Buffett has a well-earned reputation as one of the world's best business pickers. From 1965 to 2022, Buffett's business acumen helped Berkshire's shares deliver an astounding compound annual return of 19.8%.
If you bought a fund tracking the benchmark S&P 500 and reinvested the dividends over this period, you'd still only end up with an average compound annual return of 9.9%. That's a testament to Buffett's uncanny skill as an investor.
Nonetheless, the Oracle of Omaha himself has often said that most investors should simply buy a low-cost index fund that tracks the S&P 500 and call it a day. In Berkshire's 2013 annual letter, for instance, he specifically recommended the Vanguard 500 Index Fund (VOO -0.01%) for its low fees and nearly identical performance to its benchmark index.
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Should investors heed Buffett's advice or is Berkshire stock still a better growth vehicle than this popular indexed exchange-traded fund (ETF)? Let's dig deeper to find out.
Berkshire's investing thesis is changing with age
Berkshire is a diversified conglomerate that has investments in various sectors, such as insurance and energy, technology, and consumer goods, as well as large holdings of U.S. treasuries, U.S. and foreign equities, and a lot of cash. Its stock is designed to withstand both unforeseen economic shocks and normal economic downturns that occur in business cycles.
However, Berkshire does face some unique challenges due to its girth. The company has struggled to find attractive opportunities that can move the needle for its massive portfolio since the turn of the century. As a result, its stock has lagged behind the market at times over this period.
Buffett and analysts alike have acknowledged this reality and pointed to the company's size as a limiting factor. This is a key reason Apple has become the dominant position in Berkshire's stock portfolio in recent years, as it's one of the few growth companies that can match its scale.
Over the last 10 years, Berkshire stock hasn't been able to produce higher returns on capital than the S&P 500 because of its size problem and its lack of a dividend. Dividend payments allow investors to amplify capital gains over time through the power of compounding. Buffett's holding company has also underperformed the VOO over the past five years by nearly 15%, and most analysts expect this trend to continue for the foreseeable future.
BRK.B Total Return Level data by YCharts.
Better buy
At this stage in its history, Berkshire is more of a defensive play against market volatility, rather than a top-notch capital-appreciation vehicle. During short periods, the conglomerate's shares will likely do better than the broader markets because of its safety factor. It should also consistently generate positive net returns over the long term, which isn't an easy thing to do.
However, most investors would be smart to follow Buffett's advice and go with the VOO as a low-cost and tax-efficient way to grow capital over long periods. Still, Berkshire's stock could play an important role in a well-diversified portfolio as a hedge against economic and geopolitical risks, as well as other black-swan-type events.
George Budwell has positions in Apple and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
FAQs
Berkshire's 18% year-to-date returns top the S&P 500's 7% gain, and the results grow more eye-popping as the time frame extends: Berkshire's 271% return over the last decade and 50,799% surge over the last 40 years smashes the S&P's 232% and 4,213% respective gains, according to FactSet data.
What stock does Warren Buffett recommend? ›
Although old-guard favorites such as American Express (AXP) and Coca-Cola (KO) still form the core of the portfolio, Buffett & Co. have taken a shine to names such as Apple (AAPL) and Amazon.com (AMZN), and even to lesser-known firms such as Snowflake (SNOW) and Nu Holdings (NU).
What stocks does Motley Fool recommend? ›
The Motley Fool has positions in and recommends Alphabet, Bitcoin, Block, Celsius, Spotify Technology, Walt Disney, and Zillow Group. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
Should I just invest in Berkshire Hathaway? ›
Investor's Business Daily recommends investors look for companies with average EPS growth of at least 25% over that time period. Wall Street expects year-over-year earnings growth to slow for Berkshire Hathaway. Analysts are projecting annual earnings will rise 24% in 2023 and then slow to 3% growth in 2024.
What is the 10 year return on Berkshire Hathaway? ›
Definition of 10 Year Price Total Return
Last Close Price [ 415.97 ] / Adj Prior Close Price [ 122.29 ] (-) 1 (=) Total Return [ 240.2% ] Prior price dividend adjustment factor is 1.00.
Is Vanguard S&P 500 a good investment? ›
The Vanguard S&P 500 ETF (VOO -0.60%) is a top choice for most index fund investors. Even Warren Buffett recommends it above any other investment. There's a good reason for that. Its low expense ratio and tight index tracking make it a top choice for anyone looking to match the returns of the S&P 500.
Is Berkshire Hathaway a good long term buy? ›
Berkshire stock is still a long-term buy for this reason
But as we'll see, that doesn't mean shares aren't a buy. Over the last decade, Berkshire's price-to-book ratio has risen by roughly 15%. That increase in valuation multiple accounts for part of the stock's positive performance, but only a small part.
What is Warren Buffett's favorite way to invest? ›
At its core, Warren Buffett's investing strategy is not all that complicated: Buy businesses, not stocks. In other words, think like a business owner, not someone who owns a piece of paper (or these days, a digital trade confirmation).
What is the Motley Fool's top ten stocks in 2024? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal.
How does Berkshire Hathaway compared to S&P 500? ›
BRK-B - Volatility Comparison. The current volatility for SPDR S&P 500 ETF (SPY) is 3.16%, while Berkshire Hathaway Inc. (BRK-B) has a volatility of 3.42%. This indicates that SPY experiences smaller price fluctuations and is considered to be less risky than BRK-B based on this measure.
Over the course of the past few years, Warren Buffett's Berkshire Hathaway (BRK. A 0.36%) (BRK. B 0.21%) has measurably outperformed the S&P 500 (^GSPC -0.58%).
How often does Berkshire Hathaway beat the market? ›
In the past five years, Berkshire Hathaway's stock has outperformed the S&P 500 by 25%, rising 107% versus an 82% gain in the S&P 500. So far in 2024, Berkshire stock is up 17%, beating the S&P by more than 10%.
What is the S&P rating for Berkshire Hathaway? ›
Berkshire Hathaway Insurance Group 'AA+' Ratings | S&P Global Ratings.
