Warren Buffett is S&P500.
at the beginning of every time berkshire hathaway (NYSE: BRK.A) (NYSE: BRK.B) In his annual report, he shares a comparison of Berkshire Hathaway's annual earnings (including dividends) to the S&P 500 for each year going back to 1965, when he took control of the business. The results are amazing. Berkshire Hathaway's compound annual return since Buffett took over has been 19.8%, compared to 10.2% for the S&P 500.
Buffett was able to achieve these results through all types of market and economic conditions. His sole focus is on finding good companies trading at fair prices, which is beneficial for him and his investors. These stocks generally have greater downside protection along with the potential to outperform the broader market.
So when Mr. Buffett identifies companies that he believes should outperform the market average going forward, investors pay attention. In his latest letter to his shareholders, Mr. Buffett spoke of his expectations for one such company.
Stocks that Buffett says should perform better than average
Buffett manages a $376 billion stock portfolio with the help of Berkshire's other investment managers, Ted Weschler and Todd Combs.
Buffett praises the operations and management teams for some of his largest holdings. apple, american bank, american expressand coca cola. Together, these four positions account for more than two-thirds of the total portfolio. And Buffett is content to hold those stocks indefinitely.
Mr. Buffett and his team recently purchased large amounts of stock. western oil and Liberty Media SiriusXM inventory tracking; Liberty SiriusXM. The former has grown to hold an important place in the portfolio, especially considering Berkshire's Occidental preferred stock. Buffett also praised Occidental CEO Vicki Holub in his latest letter to shareholders.
But none of the stocks Buffett believes should perform better than average. Or maybe everyone does.
That's because Buffett believes that Berkshire Hathaway itself is a company that should be owned. The company not only has an impressive portfolio of equity investments, but also owns insurance, railroads, utilities, energy, and dozens of other businesses.
“With its current business structure, Berkshire should “We are doing a little better than the average American company,” Buffett said in a letter to shareholders. But he didn't stop there. He also believes that Berkshire's cash flow and minimal capital needs are what makes it Berkshire.should Operate with significantly reduced risk of permanent capital loss. ”
Buffett isn't promising the moon with his investment in Berkshire Hathaway. In fact, because of the company's sheer size ($862 billion as of this writing), he believes its days of dominating the S&P 500 are a long way off. “Anything beyond 'slightly better' is wishful thinking,” he wrote.
His comments at the 2020 Berkshire Hathaway shareholder meeting are also worth quoting. “I happen to believe that Berkshire is as healthy as any other financial institution.” single Investing is important in terms of earning reasonable returns over the long term, but I don't want to bet my life on whether I'll outperform the S&P 500 over the next 10 years. ” should Beating the market through rational fundamental analysis does not mean it will happen.
Buffett puts his money where his mouth is
Not only is Buffett the CEO of Berkshire Hathaway, but approximately 99% of his wealth is tied to the company. He says his family is also heavily invested in Berkshire's success. He talked about his sister Bertie in his latest letter to shareholders, saying she and her three daughters have most of their savings in Berkshire stocks.
In other words, Buffett cares deeply about Berkshire Hathaway and its shareholders. And he says, “Compassion does not guarantee results, but it does guarantee care.” And Buffett's attention has considerable historical value.
Additionally, Buffett is using most of Berkshire's surplus cash to buy Berkshire Hathaway stock. The board overhauled the company's capital return program in mid-2018, giving Buffett and Vice Chairman Charlie Munger the power to buy back stock whenever they believe the stock price is below its intrinsic value. After Munger's death, Buffett became the sole determinant of stock prices.
Since the change, Buffett has bought back $74 billion worth of Berkshire Hathaway stock. “Stock buybacks like this work to increase shareholder participation,'' Buffett reminds shareholders. every It's an asset owned by Berkshire. ”
Despite Buffett's belief that Berkshire has a portfolio of businesses that should outperform the average company, its price-to-earnings ratio is just 17.7. By comparison, the S&P 500 has a forward P/E of 20.8.
Additionally, Berkshire has a large cash position of approximately $167.6 billion, and Buffett continues to buy back stock every quarter. Both factors should give the stock a valuation premium. In fact, it looks like a great bargain, especially when you consider what investors in companies and stock portfolios get for that price.
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Bank of America is an advertising partner of The Motley Fool's Ascent. American Express is the Motley Fool's advertising partner for his The Ascent. Adam Levy has a position at Apple. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
“One Stock That Warren Buffett Thinks Should Beat the S&P 500 Without Falling Too Much'' is published by The Motley Fool.
