From an email discussion group of hedge fund/bond fund managers….
I get the Financial Analyst’s Journal as part of my CFA registration. The attached article [“Demystifying Buffett’s Investment Success”] investigates the extent to which Berkshire Hathaway “beat the market”. It has significantly outperformed the S&P 500, especially before about 2000. Warren is called the “Oracle of Omaha”. This author finds that the return has been higher on his ownership of public companies (where he owns a stock we all could buy) than on the private companies. He concludes that this raises doubt that he has a superior management style and incentives. I am not sure I agree with that conclusion. He also said that BRK has debt, so you need to compare his return with a stock portfolio that is 170 percent of its equity, through leverage. That and a couple other factors pretty much explain his success. I guess that is good news, because it should be possible to keep it up when Warren eventually steps down.
In other words, the correct benchmark for Berkshire Hathaway is not the S&P 500, but rather a leveraged S&P 500 (since the trend for this index has been up, especially following the election of King Donald, the leveraged index outperforms the basic index).
Separately, is now a good time to buy Berkshire Hathaway? We’ve had some great years for the stock market so it seems as though the good times are due to end. Berkshire Hathaway was able to scoop up some great deals during the last panic (2008-2009).