Berkshire Hathaway Has Underperformed S&P 500 In The Last 10 Years
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Warren Buffet is a legend among value investors. Value investing is a game he probably knows better than anyone alive. His holding company Berkshire Hathaway has had tremendous returns in excess of the S&P 500 index over the last five decades.
But the last 10 years have been different. The excess returns have seen a steady decline from 35% in the mid-1980's to zero in 2016 and negative thereafter.
What could be the root cause of this? The article where the stats were presented does not attempt at answering this question. But my guess would be the change in monetary policy across the world we've seen since the financial crisis of 2008. With massive money printing everything is looking much more speculative than before. Fundamentals matter considerably less than before.
An entirely new speculative asset class, cryptocurrency, has been introduced to the markets. Berkshire Hathaway is having difficulty finding good investments lately. Instead, it is hoarding cash and buying back its own stock.
You can make a bet that what has been dubbed the "everything bubble" will eventually come crashing down and provide excellent buying opportunities for value investors waiting on the sidelines with gobs of cash. But how likely is it? What would be the consequences for central banks stopping their money printing spree? We know the ECB tried it in 2012 with nearly catastrophic results. The Bank of Japan has been doing yield curve control since 2016. The Fed seems to think the best course of action is to continue its light monetary policy despite the US having more options that almost any other country thanks to the reserve currency status of the US dollar. The debt loads of so many large national governments are such that there does not seem to be a way out the current dilemma.
In addition to asking what will happen if the music stops, it is worth asking what will happen if the music does not stop for quite some time. I'm not a professional economist, and particularly not a much better than the average sort. This is a very complicated problem central banks are trying to manage as best they can. But there seems to be potential for the global monetary system to become dangerously unstable as the ballooning debt levels and money supply just seem to keep ballooning.
The cryptocurrency space hopes to provide life boats when the current system finally sinks, if it indeed will sink.
Source: https://kernelwealth.co.nz/buffett-vs-sp-500/
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