Investment matchup: Berkshire Hathaway (BRK.B) vs S&P500 ETF (SPY)

By: ispeculatornew
Date posted: 03.29.2011 (5:00 am) | Write a Comment  (1 Comment)

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In the past, we have often tried to compare investments, often from a current and future dividend perspective. Today, after reading through the most recent annual Berkshire Hathaway newsletter, we decided to think about the choice that we and many others have to make.

Passive retirement Portfolio

We have discussed the idea of having a passive portfolio many times in the past, one that you can set initially and spend little time looking over. Generally, these would either be passive income (dividend) portfolios or simply passive portfolios, generally made up of ETF’s. In both cases, the portfolios are created with a very long term perspective. Today we will look at the situation where you decide to invest in a passive portfolio.

US stocks

No matter where you live, and how aggressive you choose to be with that portfolio, equities are bound to have a significant portion of your portfolio and even more so for younger investors. Generally, you would invest a big part of that portfolio in the US stock market, which is by far the most important one. If you are American, that is even more true.


Today, after reading through the annual report, it got me thinking. Would I be better off owning Berkshire stock in that portfolio instead of owning what you would most commonly buy (ETF that tracks either the S&P500 or a combination of small and large US stocks)? You might think that the idea in itself is crazy… but hear me out.

Past history

If you compare the returns of the two, there is no doubt that Berkshire easily dominates the S&P500. The charts that I looked at compared the book value of Berkshire with the total return of the S&P500 (including dividends). Why the book value? It is the most easy to track and in any case, the market value of a company like Berkshire tracks its book value very closely. So what are the results?

Between 1965 and 2010, Berkshire returned an average of 20.2% while the S&P500 returned 9.4%
Berkshire had only 2 negative annual performances
If you look at annual returns, the S&P500 sometimes beat Berkshire, but look at 5 year periods and you will see that it did not happen

To be fair, the domination  was especially true in the earlier years and it’s clearly been a lot closer in more recent years. That being said, between 2000 and 2010, Berkshire did beat the S&P500 by 6% which is very significant in my opinion.

Can we use the past to predict the future?

Of course the answer to that question is no.  Everyone knows that and it’s especially true in the case of Berkshire. Warren Buffet is the first to admit that with the huge sums of money now being invested, it will be impossible to over perform to the extent that was done in the past. Why? Because finding a great opportunity for a $500 million investment is non-significant. Berkshire must find gold opportunities in the tens of billions of dollars and those are much much harder to find.

That being said, Buffet is the first to say that there is no point in running Berkshire if it cannot over perform the S&P500.


I had written some time ago about buying Berkshire as a dividend stock and while it’s certainly debatable, the fact is that it’s not all bad to not have dividend payments for such a portfolio. You will not need to manually reinvest your dividends over time but rather Buffet will be managing the money for you. Of course, when the time comes to start living off of those funds, you will be forced to sell some of your holdings. The good thing is that you will not have dividend taxes for all of those years but you will of course pay capital gains taxes when you start selling that position (assuming it has gained since then!!!).

Future management

One of the big questions of course about Berkshire is about the future once Warren Buffet and Charlie Munger are gone. They are both old and it’s a fair question to ask. To me, they seem very aware of the issue and even this year started discussing in their annual letter the future of management. Will the future be as talented as Warren Buffet? Probably not. I mean, investors like him come very infrequently. But the company is so solid that I have no doubt they can attract incredible talent in order to keep up the strong performance.


Buying an ETF like SPY is an easy way to get access to a broad range of businesses and while Berkshire is diversified, there is no way that it can compete with the S&P500. However, in my opinion, the major advantage of Berkshire is that it can use the cash generated by some of its businesses such as the insurance business in order to reinvest in others that have long term futures. That is a unique situation and seems to be working very well up to now. Berkshire does have tens and tens of companies and has only had 2 negatives years through its existence (although both are fairly recent) which to me tells you a great deal about the strength of the business. To give you an idea, while Berkshire does have major investments in insurance and financial products companies, it also has many services, manufacturing, retail, energy and even railroad companies that make it difficult to go wrong.

Are you convinced?

At this point, I’m leaning towards trying out this strategy but am not entirely convinced, I would love to hear your thoughts on this. Would a retirement portfolio comprised of ETF’s (fixed income, international stocks, etc) and of Berkshire Hathaway stocks (BRK.B) be superior to one that owned an S&P500 ETF in its place?

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1 Comment

  1. Pingback by Attitude towards debt « Intelligent Speculator — March 30, 2011 @ 5:01 am

    […] Investment matchup: Berkshire Hathaway (BRK.B) vs S&P500 ETF (SPY) […]

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