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“I never look at where a candidate has gone to school. Never!” – Warren Buffett
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It’s been a tough couple of days for bulls as the S&P 500 pulled back over 2% Thursday and Friday after hitting record highs the day before. Bulls will look to make a stand this morning, but the real tell will be to see how much staying power they have. It’s a quiet day for earnings, but Wednesday will bring about a very important report from Nvidia (NVDA). The economic calendar is also quiet today with the Dallas Fed Manufacturing Business Survey, the only report on the calendar.
The college admissions process has never been more competitive (and it’s harder than ever for the richest Americans to bribe their kids into the top colleges). Still, the quote above from Warren Buffett in this year’s Berkshire Hathaway annual letter should provide comfort to any high school seniors (or their parents) who didn’t get into their first choice. That line is only one of many parts of what has become required reading over the last few decades. Another good one: “Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability”.
Berkshire’s annual letter also serves as a reminder of what a money-making machine the company has been over the last 60 years. The first chart below shows the annual percentage change in market value of Berkshire Hathaway versus the S&P 500 from 1965 to 2024. As the company has become larger over the years, its margin of outperformance versus the S&P 500 has narrowed as the company has become so large that it’s harder to move the needle on a relative basis. Back in the 1970s and 1980s, though, the size of some of the blue bars dwarfs the red ones.
In Buffett’s first 11 years at the helm of Berkshire, the company ‘only’ outperformed the S&P 500 in six years, but from 1976 to 1983, the company outperformed for an epic eight straight years taking its cumulative percentage of years of outperformance above 70%. Since then, the pace of outperformance has leveled off with time, and through 2024, Buffett has outperformed the S&P 500 in two-thirds of all years.
Outperforming in two-thirds of all years may not sound all that impressive at face value, but like a snowball, it adds up. The chart below shows the cumulative total return of the S&P 500 and Berkshire since 1965. The S&P 500’s cumulative gain during this period is over 39,000%, but it’s barely noticeable compared to Berkshire’s gain of more than 5,000,000%!
Given its size, it has become more difficult for Berkshire to significantly outperform the S&P 500, especially during bull markets. However, given the company’s track record under Buffett’s leadership, most investors are willing to give him the benefit of the doubt. With that in mind, the stock’s modest underperformance versus the S&P 500 over the last year hasn’t caused concern for investors. The last two sessions also serve as a reminder that when the times get tough, Berkshire usually hangs in as it only declined 1% relative to the 2%+ decline for the S&P 500.
