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“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” – Warren Buffett
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Futures are firmly higher this morning with the S&P 500 indicated to open higher by 50 basis points (bps) as treasury yields continue to decline. It was barely more than a month ago that the yield on the 10-year peaked above 5%, but this morning it’s back below 4.30%. The catalyst for this morning’s rally appears to be positive inflation data out of Europe which has continued the optimism following some dovish Fedspeak yesterday. Economic data this morning has been generally positive as GDP was revised higher and Core PCE was lower than expected.
Whenever a company announces the death of a high-level executive within the organization, the statement always includes some form of boilerplate about how “so and so” was an integral part of the organization, and it wouldn’t be the same without them. In yesterday’s statement from Berkshire Hathaway announcing the death of Charlie Munger, Buffett’s statement that “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” may have sounded a lot like those typical platitudes, but in this case it couldn’t have been truer.
In 31 of the 46 years that Munger was at the company, Berkshire Hathaway outperformed the S&P 500. More importantly, though, in the fifteen years that Berkshire underperformed the S&P 500, the average underperformance was 13.2 percentage points whereas in the 31 years that Berkshire outperformed the S&P 500, the average margin of outperformance was 20.9 percentage points. So, not only did Berkshire outperform the S&P 500 more than twice as often as it underperformed, but when it did outperform, the gap was much wider than when it underperformed. The chart below compares the growth of $100 invested in Berkshire Hathaway when Charlie Munger officially joined the firm in 1978 to the growth of $100 invested in the S&P 500 on a total return basis. While $100 invested in the S&P 500 in 1978 is worth $16,527 today, that same $100 invested in Berkshire Hathaway is worth nearly $400,000 today! Not bad for two guys who started out in an Omaha grocery store.
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