A Lesson From Warren Buffett - Adviser Investments

Chart of the Week: A Lesson From Warren Buffett

February 7, 2022

Why can’t investors own the “consistently best-performing funds”? We certainly would if we could, but it’s far easier said than done. At Adviser Investments, we work incredibly hard to partner with managers who will outperform over time. However, expecting the managers we invest with (or any manager, really) to outperform the S&P 500 index year in and year out, well, that simply isn’t realistic.

To give one high-profile, non-mutual-fund example, consider Warren Buffett and his company, Berkshire Hathaway. Over the last 30 years, Berkshire Hathaway’s stock has gained 4,880%, or 13.9% per year. That’s miles ahead of Vanguard 500 Index fund’s 1,916% return, or 10.5% per annum. But if you look year by year, the stock only outperformed 20 times and trailed the index fund in 10 calendar years over that period. Said another way, Buffett outperformed the index fund by 3.4% a year over three decades while trailing once every three years.

Even the best managers trail the benchmarks from time to time.

Buffett Performance
Note: Chart shows calendar-year returns for Berkshire Hathaway’s class A shares minus the returns of Vanguard 500 Index from 1992 through 2021. When the bars are below zero, Berkshire Hathaway lagged 500 Index; when they are in positive territory, Berkshire Hathaway beat the index fund.
Sources: Morningstar, Adviser Investments.

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