I have no doubt that one of the very best investors over the long-term is Warren Buffett. The real proof to me is how he especially shines in times of crisis, as in the current environment.
Over two decades, his Berkshire Hathaway (BRK.A & BRK.B) stock has outperformed the S&P 500, 570% versus 465%. This amounts to an annual outperformance of one percent.
If Berkshire Hathaway can, over the long run, give you an extra percentage point of performance a year, then it’s a great investment to own. All you have to do is buy the stock and sleep well at night owning it, knowing Warren Buffett is in your corner.
However, here’s one interesting note: if you look at the 10-year performance, Berkshire’s entire outperformance versus the S&P 500 happened this year—2022—a year of crisis.
And, as of a month ago, Berkshire Hathaway was in the process of passing up the ARK Innovation Fund (ARKK), run by the “queen of the Bull Market,” Cathie Wood, for post-pandemic performance. It is now ahead in that race between the tortoise and the hare.
Here are the numbers comparing the two for the past year and year-to-date: over the past year, Cathie is down 52% and Warren is up 33%; year-to-date Cathie is down 38% and Warren is up 12.5%.
Why Berkshire Is Outperforming in 2022
The outstanding performance so far in 2022 and over the past year suggests that Berkshire Hathaway may offer something more than what Buffett calls “very modest” outperformance in a changing market environment.
Berkshire focuses on businesses that were out of favor in the tech-dominated, low-inflation era that may be coming to a close. And these businesses are likely to be much more appealing as technology stocks’ valuations cool and inflation rises.
Berkshire Hathaway has roughly double the exposure to energy and utilities that the S&P 500 has.
Then, there is its railroad business (perhaps 15% of the company’s value), a pseudo-monopoly with terrific pricing power. And don’t forget the manufacturing and retail businesses that Berkshire has bought over the years, which were chosen in part for their pricing power (what Buffett likes to call their “moats”), too.
Beyond a large stake in Apple, Berkshire has almost no tech exposure.
This combination of investments hitting on all cylinders at the moment. The five top-performing S&P sectors in 2022—energy, consumer staples, financials, utilities and industrials—are basically a laundry list of Berkshire’s heaviest exposures.
In other words, value is beating growth rather handily at the moment.
There is one other factor at work in the wobbly market conditions of 2022. Berkshire Hathaway has nearly $150 billion in cash, a massive pile that has been a drag on performance in prior years. But in the current global economic environment, $150 billion can provide a lot of comfort.
All Investing Is Value Investing for Buffett
I believe that Buffett’s investing style is suited perfectly to fit just about any economic environment over the long-term.
That’s because, to Buffett, all investing is value investing.
He wants to buy a business that will grow over decades, at a time when other investors are either scared or they don’t understand why it’s going to be such a good thing over the next 20 or 30 years. Then he sits back and enjoys the revaluation of the stock, as the price investors are willing to pay for each dollar of earnings growth rises as the earnings number itself grows.
Consider Coca-Cola (KO), which is Warren Buffett’s oldest stock position at Berkshire Hathaway. It has provided some of the best returns, with the stock up well over 1,800% since he started buying it 34 years ago.
Warren Buffett first bought Coke stock from 1988 to 1989, scooping up more than 23 million shares. When he started buying in early 1988, many investors were still in shock from the Black Monday stock market crash of October 1987. But not Buffett—even though many at the time considered Coke to be a risky, non-Buffett type investment by Wall Street.
Buffett defended the position in the 1988 annual Berkshire letter to shareholders with what would become one of his most famous aphorisms. In speaking about Coke, Buffett said: “…We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” True to his word, to this day, Berkshire hasn’t sold any of its Coca-Cola stock.
Berkshire Hathaway went on to more than quadruple its position, to 100 million shares by 1994. After two stock splits, the share count is now 400 million, but Berkshire’s cost basis has remained a mere $1.3 billion since 1994. And today, Buffett’s 9.3% stake in Coca-Cola is worth about $24 billion. I’d call that a successful long-term investment!
It shows that Buffett’s style of investing—value with growth—never truly goes out of style.
I expect Buffett and Berkshire Hathaway to continue outperforming in the current tumultuous global environment. The BRK.B shares are a buy anywhere around the current price of $330 a share.
I'm 65 years old. The days of me betting it all on the "next Google or Amazon" are long gone.
People like you and me don't have time to wait around for massive capital gains.
We need cash to live NOW.
Cash to cover our bills every single month.
And today, I believe we're looking at the greatest opportunity in 22 years to generate monthly income from the stock market.