Berkshire Hathaway performance below par compared to S&P 500

Warren Buffett's Berkshire Hathaway has underperformed the S&P 500’s total returns in recent years. S&P 500 gave a total return of 31.5 percent compared to a low 11 percent of Berkshire. This is the company’s lowest returns since 2009



Berkshire Hathway, the Omaha Nebraska based conglomerate headed by Warren Buffett, has underperformed the S&P 500’s total returns in recent years.

S&P 500 gave a total return of 31.5 percent compared to a low 11 percent of Berkshire. This is the company’s lowest returns since 2009.

Berkshire posted operating earnings of $4.4 billion, down from $5.7 billion a year earlier, due to lower results in insurance underwriting and other businesses of the conglomerate reporting lower incomes. The operating earnings exclude some investment results, and Buffett said they reflect Berkshire’s Hathaway performance better than net earnings, which can fluctuate widely due to unrealized investment gains or losses.

The conglomerate reported net earnings of $29.2 billion, or $17,909 a Class A share equivalent, up from a loss of $25.4 billion, or $15,467 a share, the year before. Berkshire’s earnings were mostly boosted by unrealized investment gains.

In his annual letter to shareholders, where he talks of the company’s performance and gives some insights on investment matters, Mr. Buffett avoided any mention of Berkshire’s underperformance relative to the broader market.

Buffett believes that investors should focus on long term performance rather than short term fluctuations in the stock market.

In his letter, Buffett talked of the difficulty in finding “attractively priced acquisition targets that are big enough to move the needle for Berkshire.”

The company amassed a huge cash pile of $128 billion as of December 31, according to reports

“The opportunities to make major acquisitions possessing our required attributes are rare,” Buffet wrote in the letter.

Warren-Buffett-Berkshire-Hathaway-performance-2019-2020

Warren Buffett’s Berkshire Hathaway has underperformed the S&P 500’s total returns in recent years. S&P 500 gave a total return of 31.5 percent compared to a low 11 percent of Berkshire.

Berkshire increased its buybacks in the fourth quarter to $2.2 billion, bringing its total repurchases for the year to $5 billion, the company said. This barely made any inroads in the amassed wealth of $128 billion.

The fluctuating fortunes in Berkshire are a result of the changes in the accounting principles two years ago and also the economic tailwinds that the US and the globe are facing.

The new accounting norms forced Berkshire to show the value of its $248bn equity portfolio as earnings. This added $53.7 billion as unrealized capital gains to its earning and a return on equity of 19 percent. The unrealized capital gains were due to the performance of its Apple and Bank of America stocks, which showed a bull run in 2019.

“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low-level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” Buffett said in the letter.

But investors are wondering why Buffett is holding such a large stockpile of money in short-term bonds and debt instruments ($128 billion)?

As he said in his letter, maybe he is waiting for a lucrative buyback or buy-in opportunity.

Berkshire’s main business is made up of insurance and financial investment operations as well as railroads, utilities, industrial manufacturers, and retailers. Its holdings include Dairy Queen, Duracell, Fruit of the Loom, Geico and See’s Candies.

Berkshire also holds large stock investments in Apple Inc. and Wells Fargo & Co.

Avatar
Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

Recent Posts

Goldman Sachs invests $69 million in fintech Starling

Goldman Sachs invests $69 million in fintech Starling

Goldman Sachs Growth Equity has invested £50 million ($69 million) in UK digital bank, Starling. The investment is in addition to the bank’s oversubscribed £272 million Ser
2 hours ago
Apple to launch hybrid TV set-top with speaker

Apple to launch hybrid TV set-top with speaker

Apple is bolstering its smart home devices space with the introduction of a new hybrid device— a combination of an Apple TV and a smart speaker with a screen, according to news r
6 hours ago
Leading Japanese automaker Toyota previews the future of EV – the bZ4x

Leading Japanese automaker Toyota previews the future of EV – the bZ4x

One of the most trusted pioneers of technology in the automotive sector, Toyota Motor Corp. has finally revealed the future of the EV segment by showcasing its new SUV, encompassin
7 hours ago
Mercedes unveils EQS electric sedan to rival Tesla’s models

Mercedes unveils EQS electric sedan to rival Tesla’s models

Mercedes-Benz has unveiled a battery-powered luxury car as part of the brand’s flagship S-Class saloon, designed to compete with Tesla. The 2022 Mercedes-Benz EQS is set to relea
3 days ago
Major US banks report surge in profits for the quarter

Major US banks report surge in profits for the quarter

Three major US banks —JPMorgan Chase & Co., Wells Fargo & Co. and Goldman Sachs Group Inc.—reported earnings results for the first quarter of 2021.
3 days ago
Bitcoin Price surges above $63,000 ahead of Coinbase IPO

Bitcoin Price surges above $63,000 ahead of Coinbase IPO

Bitcoin price has once again soared over $63,000 USD as the cryptocurrency market braces for the upcoming Coinbase IPO. The San Francisco-based cryptocurrency exchange platform, wh
3 days ago