Buffett's investment returns
Most people only think about getting rich overnight, rather than gradually becoming wealthy.In the comments section of yesterday's article, a reader mentioned a piece of data that has recently been widely discussed by many financial media outlets:
Over the past 20 years, Buffett's average return has been lower than that of the S&P 500 index.
This data was quite surprising when it first emerged. However, when we dig deeper, we find that there are many details behind this unexpected data that are worth our consideration.
First of all, the return here actually refers to the return of Buffett's entire team rather than Buffett's own investment return.
In the early years, to avoid the unexpected consequences that well-known natural laws might bring to the company, Buffett and Munger gradually handed over more and more business to their successor team to manage.
The successor team performed quite well in the initial stages, with their performance once surpassing that of the two founders. However, this good fortune did not last long; thereafter, the successor team's performance was no longer brilliant, not only failing to surpass the two old gentlemen but also lagging behind the S&P for a long time. Meanwhile, the two old gentlemen continued to maintain their brilliant track record.
After this data was first exposed by the American financial community, many people began to worry about what would happen to Berkshire Hathaway once the two old gentlemen were no longer at the helm of this vast empire.
At this year's shareholder meeting, there was a moment like this:
One of the successors, Ajit Jain, shouted to the audience:
"No one is irreplaceable. I believe we have Tim Cook in the audience, who has proven this and set an example for many followers."
To be honest, I hold a very cautious attitude towards this statement.
Aside from team reasons, there are other factors that can partially explain why Berkshire Hathaway's returns have started to decline.
A well-known private equity manager in our country, Dan Bin, explained this phenomenon well in a recent interview:
One reason is that the leading companies driving the U.S. stock index have undergone significant changes. The companies currently leading the S&P index are those few tech giants. The technology sector is an area that Buffett tends to avoid. In this context, it will only become increasingly difficult for investments in traditional sectors, where Buffett excels, to outperform the S&P 500.
On this point, Munger has repeatedly mentioned in his shareholder meeting speeches that the current investment market is no longer like it was when they were young, where one could easily find good targets with a little searching; investing has become increasingly challenging.
Moreover, Berkshire Hathaway's size has also grown larger, and maintaining returns above the index at such a large scale poses a significant challenge for them.
To address such challenges, investing in Apple was an attempt by the two old gentlemen.
Munger stated in response to a shareholder's question about investing in Apple that the company began to try investing in Apple out of necessity.
In an increasingly difficult investment environment, finding higher returns requires trying new breakthroughs and new fields. Thus, they chose Apple.
Munger also mentioned that when they initially invested in Apple, they didn't have much confidence either; they were figuring things out as they went along, and that's how they made it through.
From this phenomenon and these details, we can also see that achieving long-term, stable returns that exceed the index in the stock market is not an easy task.
Therefore, the two old gentlemen have repeatedly emphasized on multiple occasions that for ordinary investors who do not have the time to research companies, the best way to invest in the stock market is to invest in index funds.
However, the vast majority of people are thinking about getting rich overnight, rather than being willing to become wealthy gradually.
This Saturday (May 11) at 8 PM, we will hold an online discussion on Twitter. For details, please see the link below:
++https://x.com/DaosViews/status/1787331370689446081++
