Warren Buffett's Staggering Returns Over The Past 50 Years

I hear it all the time.

People will look at Warren Buffett's returns over the past decade or so (via Berkshire Hathaway) and shrug their shoulders.

"What's so special about those returns?", they'll ask.

In order to fully appreciate the genius of Warren Buffett, you need to consider his returns from the time that he started his first investment partnerships until present day.

You need to remember one very important point - Buffett is investing differently now than he did 30, 40 or even 50 years ago. The reason? Berkshire Hathaway is so immensely big that his old methods of investing/trading simply don't scale. With the immense amount of money that Buffett controls, he can only go after the "elephants" - investing $10 million in an an idea simply won't move the needle at Berkshire Hathaway. Instead, he needs to focus on billion dollar stakes and acquisitions, and this makes it much harder for Buffett to beat the market. It's the law of Big Numbers.

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Nowadays, Buffett is buying massive stakes in Apple and absorbing companies into the Berkshire Hathaway fold that are worth tens of billions of dollars.

Decades ago, however, Buffett was able to be much more nimble as he had less funds under management. This led to interesting possibilities for Buffett, including chasing after his "cigar butt" companies, participating in merger arbitrage and taking activist stakes in smaller companies.

The reality is that these methods don't really scale, so Buffett has largely abandoned them.

If you want to know how Buffett was able to outperform the markets so badly during the first few days of Berkshire Hathaway, look no further than these methods. If you want to know how Buffett built up his wealth so quickly, go through Berkshire Hathaway's old shareholder letters and read about the methods listed above.

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If you want to be impressed, consider Berkshire Hathaway's compounded annual gain (in per-share market value) from 1965-2018.

Over that time period, Berkshire Hathaway returned 20.5% per year, compared to an annual gain of 9.7% for the S&P 500 (with dividends included).

Let's consider the fact that most hedge funds can't beat the market, but folksy Warren Buffett, aka the "Oracle of Omaha", more than DOUBLED the performance of the markets over a 50+ year time period. That's insane.

Let's consider the real money implications of this outperformance.

From 1965-2018, the S&P 500 returned a total of 15,019%. So, a single dollar invested in 1965 would be worth over $15,000 at the end of 2018.

Now, let's consider Berkshire Hathaway's performance.

During that same time period, Berkshire Hathaway returned 2,472,627%. A single dollar invested in Berkshire Hathaway in 1965 would be worth over $2.4 million by the end of 2018.

By doubling the market's performance, Buffett was able to return 2,472,627% vs the 15,019% of the S&P 500.

Sure, Buffett's outperformance of the market has moderately significantly over the past decade, but this is simply due to the fact that Berkshire Hathaway manages SO much money now.

The next time somebody questions Buffett's results, just pull up the annual Berkshire shareholder report and point to the annual returns that are included right at the beginning of the report.

Filed under: General Knowledge