4 ms·

EDIT: Apparently I'm out of my depth here. Leaving my comment below for posterity. > He has lagged the market for 15 years Here's Berkshire's performance comp

EDIT: Apparently I'm out of my depth here. Leaving my comment below for posterity. > He has lagged the market for 15 years Here's Berkshire's performance compared to the S&P500, over the last 20 years: https://imgur.com/Ssfon56 https://imgur.com/Ssfon56 S&P doubled your money, BRK quintupled it.

smabie 6y ago
Your chart is incorrect. With split and dividend adjustments, the returns are almost identical from 2002 onwards (I don't have personal data before 2002). 2002 to date, BRK had a 8% annualized return and the S&P 500 has a 7.8% return. However, BRK has a lower Sharpe ratio (0.38) than the S&P 500 (0.4). So in a real sense, SPY has outperformed BRK. That's not to say that an investment in BRK is irrational, the beta is low (0.71) and the correlation to the market is low as well (0.65). You can't just naively compare some price chart, finance doesn't work like that. Source: I work as a quant
- function_seven 6y ago
  Thanks. I should have listened to the small voice in my head before posting that. So while BRK isn't crushing the index, would it be fair to say it "lagged" the market over the past 15 years? Seems pretty close, but I don't have the knowhow to analyze that time period with dividend reinvestment thrown into the mix. Though I've always thought these charts account for splits, no?
  - smabie 6y ago
    No I definitely wouldn't say it lagged the market. While BRK isn't "crushing it", it's done a pretty good job considering the high concentration of positions and low diversification. It's clear that Buffet has been delivering significant alpha over the 21st century. Due to the low correlation with the market, BRK can be seen as a great way to diversify away market risk and increase the risk-adjusted returns of a S&P 500+BRK portfolio. Or in other words, it's a totally solid investment. Price charts don't account for dividends because people would get confused why the actual price you pay for something is different than the price on the chart. Edit: sorry if I sounded harsh in my previous comment, I'm a little anal about these things as I see a lot of financial misinformation on HN.

smabie 6y ago

Your chart is incorrect. With split and dividend adjustments, the returns are almost identical from 2002 onwards (I don't have personal data before 2002). 2002 to date, BRK had a 8% annualized return and the S&P 500 has a 7.8% return. However, BRK has a lower Sharpe ratio (0.38) than the S&P 500 (0.4). So in a real sense, SPY has outperformed BRK. That's not to say that an investment in BRK is irrational, the beta is low (0.71) and the correlation to the market is low as well (0.65). You can't just naively compare some price chart, finance doesn't work like that. Source: I work as a quant

function_seven 6y ago
Thanks. I should have listened to the small voice in my head before posting that. So while BRK isn't crushing the index, would it be fair to say it "lagged" the market over the past 15 years? Seems pretty close, but I don't have the knowhow to analyze that time period with dividend reinvestment thrown into the mix. Though I've always thought these charts account for splits, no?
- smabie 6y ago
  No I definitely wouldn't say it lagged the market. While BRK isn't "crushing it", it's done a pretty good job considering the high concentration of positions and low diversification. It's clear that Buffet has been delivering significant alpha over the 21st century. Due to the low correlation with the market, BRK can be seen as a great way to diversify away market risk and increase the risk-adjusted returns of a S&P 500+BRK portfolio. Or in other words, it's a totally solid investment. Price charts don't account for dividends because people would get confused why the actual price you pay for something is different than the price on the chart. Edit: sorry if I sounded harsh in my previous comment, I'm a little anal about these things as I see a lot of financial misinformation on HN.