Berkshire Hathaway’s 60‑Year 19.9% Annual Return Doubles the S&P 500 – Is the Strategy Still Viable?

Key Points

• Under new CEO Greg Abel, Berkshire’s core strategy remains largely unchanged, and he has already executed a notable acquisition.

• Berkshire Hathaway’s shares have lagged behind the S&P 500 over the last three, five, and ten years.

• Looking forward, Buffett has warned that extraordinary returns are unlikely.

Warren Buffett is widely regarded as one of the greatest investors of our era. As he steps down as chairman of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), he leaves behind a celebrated legacy. The conglomerate he built now encompasses close to 200 operating businesses and holds an equity portfolio valued at roughly $350 billion.

Over that period, Berkshire’s shares rose more than 5,500,000%, translating to a 19.9% annual compounded return—almost double the S&P 500’s 10.4% yearly gain. The question remains whether such a performance can be replicated.

The new Berkshire Hathaway is the same as the old

Berkshire Hathaway now rests in the capable hands of Greg Abel, who has been preparing for the role since his arrival in 2018. Thus far, he has kept the firm’s basic framework intact, trimming only the tiniest equity holdings as he previously promised. His most notable move to date is the purchase of homebuilder Taylor Morrison, completed in July for $6.8 billion.

Image source: The Motley Fool.

A further notable development is Berkshire’s sizable stake in Alphabet, which was actually initiated during Buffett’s tenure and aligns with the firm’s usual investment approach.

Investors should anticipate more of the same: sizeable acquisitions when valuations are attractive and sizable stock purchases that meet Berkshire’s criteria. While the specific targets may change, they are likely to feature dominant market positions, capable management, and robust cash generation.

Will the stock follow?

Berkshire’s shares are unlikely to match those historic gains. When Buffett assumed control in 1965, the company was far smaller; replicating that six‑decade expansion is not feasible. As the base grows, the same dollar‑value increase yields a smaller percentage return, and because investors focus on percentage growth, Berkshire no longer qualifies as a high‑growth stock.

Consider the revenue trajectory: from $2.66 billion in 1990 to $34 billion in 2000, then swelling to $246 billion by 2020—almost a hundredfold increase over three decades. The stock rose roughly 900% in that span. Repeating another hundredfold expansion in the next 30 years is implausible, and the share price will mirror the company’s actual growth.

Berkshire is already exhibiting signs of a slowdown, and its shares have trailed the broader market over the last three, five, and ten years.

^SPX data by YCharts

Buffett touched on this point in his 2023 shareholder letter:

There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.

Nevertheless, the stock can still deliver value. Abel and his team are likely to acquire strong companies and uncover deeply discounted stocks, which should produce steady growth over the long term.

Should you buy stock in Berkshire Hathaway right now?

Investors considering a stake in Berkshire Hathaway should keep the following points in mind.

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