Warren Buffett isn't sure Berkshire Hathaway can beat the S&P 500

Bill Pugliano/Getty
  • The legendary investor Warren Buffett predicts Berkshire Hathaway may only modestly outperform the S&P 500, if at all.
  • The Berkshire CEO made the comment in a wide-ranging interview with the Financial Times.
  • Buffett also noted that Berkshire may buy back as much as $US100 billion of its own stock if he cannot find better investment alternatives.
  • Watch Berkshire Hathaway trade live.

Warren Buffett shot down expectations that the conglomerate Berkshire Hathaway will significantly outperform the S&P 500 going forward.

The billionaire investor, dubbed the “Oracle of Omaha,” told The Financial Times that Berkshire Hathaway, the company he has controlled since 1965, is a safe investment, but one that may only have “a tiny expectation of better [performance] than the S&P.”

Buffett has a history of keeping expectations low, despite significant outperformance over his investment career. “The one thing that would ruin my life is people expecting more than I deliver,” he told the FT.

Despite this, Berkshire has had a surprisingly long run of underperformance relative to the benchmark S&P 500. According to The Financial Times’ calculations, Buffett’s posted double-digit outperformance from January 1979 to October 2008, but has since lagged the index, when taking into account reinvesting dividends.

A dollar invested in the S&P 500 10 years ago would be worth $US3.20 versus $US2.40 for Berkshire, the FT said. That stretch of underperformance has been the longest of Buffett’s career. That’s due to the outsized gains of large-cap tech companies, such as the FANG stocks, driving the S&P 500 forward.

Buffett famously shunned tech stocks for most of his investment career though his attitude changed in 2011 with an investment in IBM. Though Buffett later soured on IBM’s prospects, exiting the position entirely by 2018, he has continued to explore investments in technology.

Apple is now Berkshire’s largest equity investment, with the famed investor saying he would purchase more shares if the stock became cheaper. Berkshire Hathaway holds a stake of roughly 5% of the company, currently worth nearly $US52 billion.

While Buffett has struggled to find additional investments in an elevated market, he has begun to focus on using Berkshire’s enormous cash pile, now over $US111 billion, to buy back the company’s shares. Buffett told the FT that buybacks of Berkshire could eventually reach $US100 billion, though purchases to date have been limited.

Berkshire Hathaway recently abandoned its policy of restricting buybacks to times when the stock fell below 1.2 times book value per share. Buffett can now buy back stock when he and Munger believe shares are trading at a significant discount to intrinsic value.

Despite the recent underperformance, Buffett did not appear perturbed.

“If you played golf and you hit a hole in one on every hole, nobody would play golf, it’s no fun,” he said. “You’ve got to hit a few in the rough and then get out of the rough . . . That makes it interesting.”

Berkshire Hathaway shares were up 4% this year through Thursday. Meanwhile, the S&P 500 was up 17%.

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