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If his knowledge were compounding, we'd expect his performance to getting over time, not worse. But that's the opposite of what happened. He's underperformed t

If his knowledge were compounding, we'd expect his performance to getting over time, not worse. But that's the opposite of what happened. He's underperformed the S&P 500 over the last 10 years. And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on.

NLips 8y ago
I don't believe that's true. Looking at historic performance of BRK-A, it's out-performed the S&P 500 betwen pretty much any starting point and right now. The only exceptions I can see are midway through the '08-'09 financial crisis, where at times the S&P had sunken faster than BRK-A, leading to having a slightly larger recovery since.
nabla9 8y ago
You make solid observations but there are good explanations for this. 1) Investment opportunities are inversely related to the size. Buffet has constantly warned shareholders that as the size of the company grows, it becomes harder and harder to find good investments. Assuming he can analyze only fixed number of companies, we should expect that there is less potential companies to buy. Buffet has changed his investment strategies several times to reflect changes in his opportunities. 2) Timing. BRK is a company with incredible patience. If you compare SP500TR and BRK over decades, you notice that BRK makes permanent break from SP500 during stock market crashes and long recessions. During stock market booms BRK starts to lose to to the inflated market prices. We are currently riding on the top of 10 year stock market boom. BRK is patiently buying companies with long term steady profits. For example, Buffet is buying energy companies and electricity transmission businesses all over the the west. These companies are geographically linked and there will be benefits from smart grid investments in the future, especially if the future is solar.
billmalarky 8y ago
>And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on. Keep in mind it is much easier to get great returns when you are smaller. Put another way, there are _significantly_ more opportunities to turn $1 million into $10 million than there are to turn $1 billion into $10 billion. At buffet's scale the opportunities are few and far between for hockey stick growth. As for his performance relative to the S&P 500, fair point. UPDATE: Just saw that my comment is basically a clone of a reply you had already received... Oh well ¯\_(ツ)_/¯

NLips 8y ago

I don't believe that's true. Looking at historic performance of BRK-A, it's out-performed the S&P 500 betwen pretty much any starting point and right now. The only exceptions I can see are midway through the '08-'09 financial crisis, where at times the S&P had sunken faster than BRK-A, leading to having a slightly larger recovery since.

nabla9 8y ago

You make solid observations but there are good explanations for this. 1) Investment opportunities are inversely related to the size. Buffet has constantly warned shareholders that as the size of the company grows, it becomes harder and harder to find good investments. Assuming he can analyze only fixed number of companies, we should expect that there is less potential companies to buy. Buffet has changed his investment strategies several times to reflect changes in his opportunities. 2) Timing. BRK is a company with incredible patience. If you compare SP500TR and BRK over decades, you notice that BRK makes permanent break from SP500 during stock market crashes and long recessions. During stock market booms BRK starts to lose to to the inflated market prices. We are currently riding on the top of 10 year stock market boom. BRK is patiently buying companies with long term steady profits. For example, Buffet is buying energy companies and electricity transmission businesses all over the the west. These companies are geographically linked and there will be benefits from smart grid investments in the future, especially if the future is solar.

billmalarky 8y ago

>And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on. Keep in mind it is much easier to get great returns when you are smaller. Put another way, there are _significantly_ more opportunities to turn $1 million into $10 million than there are to turn $1 billion into $10 billion. At buffet's scale the opportunities are few and far between for hockey stick growth. As for his performance relative to the S&P 500, fair point. UPDATE: Just saw that my comment is basically a clone of a reply you had already received... Oh well ¯\_(ツ)_/¯