Even Warren Buffett can’t beat the stock market (BRK.B)

Reuters

Warren Buffett outperformed the S&P 500 for decades, but those days may be over.
Berkshire Hathaway has basically matched the return of the S&P 500 since 2011.
At current levels. Buffett thinks Berkshire has only a "tiny" chance of outperforming the S&P 500 over the long-term.
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Legendary investor Warren Buffett, who has beaten the S&P 500 index for decades, has long predicted that his days of outperformance would be numbered given the growing size of his firm, Berkshire Hathaway. With Berkshire Hathaway’s market cap now over $500 billion, it is increasingly difficult to find profitable investments sizable enough to move the needle.

An analysis of Berkshire Hathaway’s performance versus the S&P 500 holds interesting conclusions for followers of the legendary investor, according to S&P Dow Jones Indices’ Indexology Blog.

In summary, it has been a long time since the "Oracle of Omaha" has outperformed the market over a 10-year period. In fact, after peaking in 1985, when Buffett outperformed the S&P 500 by over 35% on a trailing 10-year basis, the outperformance has steadily dwindled. It has underperformed the benchmark index several times since 2011.

"There are 40 (overlapping) ten-year performance windows in our 50-year history," wrote Craig Lazarra, managing director and global head of index investment strategy at Standard & Poor’s.

"In the first 20 of them, Berkshire beat the S&P 500 by more than 10% per year. In the second 20, Berkshire’s margin of outperformance hit double digits only 3 times; the last such period ended in 2002."

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Buffett himself has readily admitted Berkshire’s days of wildly outperforming of the S&P 500 are over. In an interview with the Financial Times, the billionaire investor went so far to say that it may not happen again.

"I think the financial result would be very close to the same," when asked by the FT if Berkshire Hathaway would be a better investment than the S&P 500.

"I think this: if you want to join something that may have a tiny expectation of better [performance] than the S&P, I think we may be about the safest," added Buffett.

Lazarra, also citing the FT interview, concluded, "When the premier active investment manager in modern financial history says that, you know that active management is a very hard game – and getting harder."

Still the lagging investment performance has not caused any sleepless nights for Buffett. "I’m having more fun than any 88-year-old in the world," Buffett told the FT.

In 2008, Buffett famously bet the hedge fund manager Protege Partners that a portfolio of hedge funds would not beat the S&P 500 over a 10-year period. He won the bet and donated his $1 million prize to Girls, Inc.

Berkshire Hathaway shares are up 2% this year.

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