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David England: Warren Buffet — let's not count him out just yet
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Column | Eye on the Market

David England: Warren Buffet — let's not count him out just yet

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Last week, I analyzed the performance of Warren Buffett’s company, Berkshire Hathaway, and showed how much it underperformed the major U.S. indexes.

What’s next? Today, I answer questions on which market cap funds are available to track the indexes I featured last week.  Then we look under the hood of Berkshire’s top holdings to see if we can spot the lack of performance vs. these general indexes.

To help answer, I charted the performance from the recent market bottom, March 2020 running to real-time, using these major equity indexes main ETFs: S&P 600 Small Cap Index (IJR-purple line), S&P 400 Mid Cap Index (IJR-red line), NASDAQ 100-Large Caps (QQQ-black line), S&P 500-Large Caps (SPY-blue line), and Berkshire Hathaway-A shares (BRK/A-brown line). 

The results and returns are as follows: S&P 600 Small-Cap Index ETF (IJR) up 140.24%, Mid-caps ETF (IJH) up 127.04%, NASDAQ 100 ETF (QQQ) up 86.79%, S&P 500 ETF (SPY) up 78.66%, and Berkshire Hathaway (BRK/A) was the laggard, up only 59.22%.  The market ($SPX) was up 75.93%. Mr. Buffett was correct in recommending investing in a market index fund. The leader, S&P 600 Small-Cap Index ETF (IJR), outperformed Berkshire by an overwhelming 81.02%.

Here are the action points:

  1. These results represent a specific period. Different dates will result in different outcomes. 
  2. When investing, diversification among different equity groups reduces risk. 
  3. Past performance does not dictate future returns.
  4. All of these major US Index ETFs outperformed the returns of Berkshire Hathaway and their once mega-successful value investing strategies. 

Next, let’s look under the hood of Berkshire’s top holdings to see if we can spot any lack of performance vs. these general indexes.

I charted the performance of Berkshire Hathaway’s top nine holdings, listed by holding size, from the recent market bottom, March 2020, running to real-time. The results and returns are as follows: Apple Computer (AAPL) up 120.78%, Bank of America (BAC) up 113.75%, American Express (AXP) up 111.11%, Kraft Heinz Co., (KHC) up 94.53%, US Bancorp (USB) up 95.45%, Altria Group (MO) up 72.54%, Chevron Corp., (CVX) up 109.19%, Coca-Cola Co., (KO) 41.08%, and Verizon (VZ) up 15.86%. 

Here are the key points:

  1. These results represent a specific period. Different dates will result in different outcomes. 
  2. Out of the nine top Berkshire Hathaway holdings, only six outperformed the market ($SPX).
  3. Past performance does not dictate future returns.

One of the things I have learned about Mr. Warren Buffett — never count him out. After the colossal market downturn starting in 2000, many of his holdings then outperformed the market. Will this repeat, or is his once mega-successful value investing strategies, a thing of the past? We will see! 

The last question — who am I watching to possibly replace Warren Buffett? My answer — keep an eye on the funds/holdings of Cathie Woods of ARK Investment Management LLC and Venture capitalist Chamath Palihapitiya. It is exciting to see what they are doing in what I call the new normal. 

Plan your work, work your plan, and share your harvest! 

David O. England is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to thetraderseye@gmail.com.

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