As I sat down this week to research for a new blog post, I read several news headlines on how Berkshire Hathaway (BRK.A, BRK.B) has outperformed the stock market this year so far. This motivated me to take a look at my own investing history with Berkshire.
Berkshire and I go long ways back. I first bought the company shares in December 2009 when the market was still reeling from the GFC (Great Financial Crisis) aftershock. A year later, Berkshire B shares were split 50-1 to help with its railroad acquisition (Burlington Northern). This was also before Berkshire shares were added to the S&P 500 index.
Over the years, I had continued buying more shares. Most of my purchases were between 2011 and 2018. Last time I bought shares it was March 2020 when the market was tanking due to Covid fears. I haven’t sold any shares since 2009 with one exception: In July 2021, I sold a small fraction of my holdings to increase the dry powder cash I hold in my portfolio. This was part of an across-the-board fractional profit taking (I sold proportional shares from all my top stock positions).
Here’s a chart that shows all my Berkshire share purchases (green lines) and sales (red lines) since 2010. Quicken wouldn’t go past 2010 so my first purchase is not shown there. The red lines in the middle of the chart do not represent actual share sales. Those were just share transfers from one broker to another. As I mentioned before, the only share sales occurred in 2021 (the rightmost two red lines on the chart).
So how did I do so far? My real-life dollar-weighted rate of return is 14.9% annualized (IRR). From December 7, 2009, to April 24, 2022 (when I did the calculations). An investing period of over a dozen years.
If I had just invested once in the beginning and not sold or bought any shares since, my net return would have been about 14.1%. So, I did better than a simple buy-and-hold by tactically buying more shares whenever the stock dropped. Still, 14.1% annual return averaged over ten-plus years is better than many other stocks.
How did the market do? Over the same period, the S&P 500 index returned 11.51% annualized, per Morningstar. However, this is not a fair comparison since some of the S&P 500 companies pay dividend while Berkshire does not. A better comparison would be if I take S&P dividends into account. For that, I turned to this excellent online tool (from DQYDJ) that calculates dividend reinvesting effect.
With dividends reinvested and no tax/fee costs (assume IRA holding and a near-zero cost Vanguard ETF), my return for the period would have been 13.6%. If I account for 15% capital gains tax rate and 0.1% ETF fee, my return will drop down to 13.1% instead.
The bottom line is that my straightforward buy-and-hold (and buy some more on occasional dips) strategy with Berkshire Hathaway stock had outperformed the stock market handily over the last 12 years. To put it in context, $10K invested once in the beginning of the period would have now become about $55K — a 5.5x multiple on capital.
What’s remarkable is that there was very little effort that went into my investing in Berkshire for the last decade. I just invested my capital with the management that I trusted and then ignored price fluctuations and media red herrings. I didn’t need to worry about the tax implications of dividends or capital distributions (Berkshire doesn’t pay dividends). I didn’t need to pay Mr. Buffett and company any management or performance fees (unlike a fund manager). I also didn’t need to worry about any misaligned incentives (Berkshire management’s own wealth is tied to the business).
As far as media distractions are concerned, they will always be there. Especially with Berkshire since the business and its esteemed CEO are widely recognized everywhere. Throughout the last decade, there were investors (and journalists) fretting over the state of Berkshire business. Concerns had ranged from the size of the cash pile Berkshire had amassed, not returning cash to investors, not aggressive enough to invest in public securities, to Buffett losing his investing acumen. In 2019, a fund manager famously accused Buffett of thumb-sucking during the Great Bull Market of 2009-2019 and sold all his shares that his fund had reportedly owned for 20 years. Others were less dramatic but still rebuked Berkshire for not doing enough for its shareholders.
And yet despite all the misgivings and worries, Mr. Buffett and his team continued doing what they did best i.e., successful capital allocation. Despite consistently carrying more than $100bn cash for the past decade and not finding any ‘elephant-sized acquisition’ for the most of that period, his team still outpaced the overall stock market.
Since I bought shares in 2009, Berkshire has acquired (or bought a significant stake in) the following major businesses: Burling Northern (railroad operator), Lubrizol (specialty chemical), Heinz (food processing), Duracell (batteries), Precision Castparts (industrial), Apple (consumer tech), Dominion Energy (gas midstream), Occidental (oil production), and Alleghany (insurance). The entire list of purchases is too long to show here. But we passive investors can rest assured that Berkshire is always seeking profitable avenues to deploy our capital.
Pick another time period and you may find that Berkshire hasn’t done nearly as well as the stock market. For instance, from my first purchase (12-2009) to the end of last year (12-2021), Berkshire performance was about par with the S&P 500 index. On the other hand, in turbulent markets, Berkshire shares usually outperform. It’s the proverbial flight to safety. Nevertheless, for patient long-term oriented investors like me, holding on to Berkshire shares through thick and thin is the best strategy. And far less work to boot. The master capital allocator is doing his job well, indeed!
Epilogue: I had originally planned to attend this year’s Berkshire annual meeting in person in Omaha but had to change plans due to some personal conflicts. I am a regular at the Omaha meeting since I have been a shareholder. Fortunately for me, Berkshire has started live streaming the meeting a few years ago so I won’t miss much. Here’s to many more of those! [This post was written before the Berkshire annual meeting took place on April 30th.]