Berkshire Hathaway (BRK.B) is in a class by itself when it comes to really long-term outperformance. It’s not for nothing that Warren Buffett, who will retire as CEO at the end of 2025, is known as the greatest long-term investor of all time.
BRK.B stock has been a market beater over the past 20 years, too, but all the millionaires Berkshire has minted had skin in the game long before the turn of the century. That’s how compounding and the law of large numbers work.
But first, a quick recap of Berkshire Hathaway’s history. The company was a struggling textile firm when Buffett took control in 1965. Over the ensuing years, Buffett converted it into a holding company, or a company that buys other companies.
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Buffett’s first target was an insurance company, and the insurance business continues to be at the core of its operations today.
The insurance business was especially attractive to Buffett because of float, or the money insurance companies hold between collecting premiums and paying out claims. Thanks to the float from Berkshire’s insurance companies, Buffett had ample sources of capital to buy up or invest in other enterprises.
Today, Berkshire Hathaway comprises more than 60 wholly owned subsidiaries, including BNSF Railway, Geico insurance, industrial titan Precision Castparts and fast food chain Dairy Queen.
The Berkshire Hathaway equity portfolio, with a market value of about $250 billion, includes major stakes in Apple (AAPL), Bank of America (BAC) and American Express (AXP), to name just a few.
Berkshire Hathaway has always been a long-term bet on the dynamism of the U.S. economy. It’s also a low-beta stock, which means it tends to underperform in up markets and outperform in down markets.
And what that has added up to over the past 60 years is nothing more than astonishing. Since 1965, Berkshire stock has generated a compound annual growth rate of almost 20% vs 10% for the S&P 500.
What does that look like on a brokerage statement? Well, if you put $1,000 into Berkshire stock 60 years ago, it would today be worth about $33 million. The same sum invested in the S&P 500 would be worth about $336,000 today.
Warren Buffett and his late partner Charlie Munger really did mint many a millionaire over the course of their long careers.
However, BRK.B’s returns over the past 20 years, while excellent, have naturally been more modest.
After all, there’s nothing like getting in on the ground floor.
The bottom line on BRK.B stock?
Although BRK.B stock outperformed the broader market by a wide margin over the past five years, it actually lagged the returns of the S&P 500 over the past one-, three-, 10- and 15-year periods.
If you go back 20 years, BRK.B, which doesn’t pay a dividend, generated an annualized return of 11.2%.
That’s not too shabby, leading the S&P 500, with dividends reinvested, by almost a percentage point. An active fund manager would be thrilled with such outperformance, but it hardly means BRK.B stock was a path to riches in the 21st century.
Have a look at the above chart to get a sense of what BRK.B’s returns would mean to your brokerage statement over the past couple of decades. They’re good, but not great.
Indeed, if you put $1,000 into Berkshire stock 20 years ago, today it would be worth about $8,500. The same amount invested in the S&P 500 would theoretically be worth about $7,600 today.
With Warren Buffett set to step down at the end of 2025, some folks fear that Berkshire stock’s best days are behind it. The reality is that Berkshire is now so big that it’s unreasonable to expect anyone to repeat Buffett’s historic run.
True, that doesn’t mean BRK.B can’t continue to be a market beater going forward. Wall Street is mostly bullish on the name, giving it a consensus recommendation of Buy, according to data from S&P Global Market Intelligence.
Nevertheless, BRK.B’s era of generating truly outstanding returns would appear to be behind it – and that was true even before Buffett announced his retirement.
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