Berkshire Hathaway’s 21.6% annualized return for the 50 years through 2014 was 11.7 percentage points higher than the S&P 500 index. The stock produced an astounding 1,826,163% overall gain during that period, compared to 11,196% for the S&P 500, according to the firm’s 50th anniversary letter to shareholders, released over the weekend.
During that period, Warren Buffett’s firm posted negative calendar year returns on 10 occasions, compared to 11 for the S&P 500. Its worst loss occurred during the bear market of 1974 (-48.7% vs. -26.4% for the S&P 500). In its letter to shareholders that year, Mr. Buffett said Berkshire’s insurance operations “turned dramatically worse” as the industry suffered from mispricing due to increased competition, under-reserving of losses and high inflation.
The company’s largest calendar year return came two years later in 1976, when it posted a gain of 129.3% vs. the S&P 500’s 23.6% return.
In the firm’s golden anniversary letter to shareholders, both Mr. Buffett and Vice Chairman Charlie Munger share their thoughts on the firm and investing over the past 50 years. On the topic of active management, they note: “Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game.”