Read Buffett

by john on March 9, 2003

Our annual investment class, otherwise known as Warren Buffett’s Letter to the Shareholders of Berkshire Hathaway, Inc. was released yesterday and as usual it is chock full of stories, advice, warnings and above all, a story of spectacular results.

Buffett was routinely dismissed by the investment community in the late nineties, given his disdain for investing in technology stocks which had been fueling the growth of the markets and reached a crescendo in 1999. In that year Buffett’s Berkshire Hathaway returned a .5% annual gain whereas the S&P 500 gained 21%. Poor Warren had lost his touch, they said. He needs to get with the program and invest in tech for the good of his shareholders, they said.

Well, not so fast. As it turns out missing out on the technology bubble was not a bad thing. And 1999 remains the only year since 1980 that Berkshire did not beat the S&P 500. In fact during that time it has beat the S&P 500 by an average of 11% per year. Not 11% annual gains for Berkshire, but 11% over and above that popular benchmark. In 2002 Berkshire Hathaway saw an annual gain of 10% while the S&P 500 returned (not the best word!) an anemic -22.1%, for a 32.1% relative result for Berkshire. No wonder his shareholders are so loyal.

Reading his letter is always an eye-opener for me, especially since I have been doing the same for the investment club I started in 1999. An investment club meant specifically to invest in growth stocks and mostly targeted to high tech investments, or at least it was back then. I’ve had the joy of writing a letter to shareholders (partners, really) every year since then and other than the first year, when making money was so easy, my letter’s have been filled with doom and gloom as I try to explain why we are doing so poorly. Oh how I would like to start a letter like Buffett does, “In all respects, 2002 was a banner year.

So here is a good example of why our investment club shouldn’t be managing your money, and why we’ve undergone some changes in our investment philosophy:

Year     Berkshire     S&P 500     Us     Berkshire/Us relative
1999         .5          21.0       58.0           (57.5)
2000         6.5        (9.1)      (40.0)          46.5
2001        (6.2)       (11.9)     (40.0)          33.8
2002         10.0       (22.1)     (41.0)          51.0

Now I’m depressed again.


Joe Grossberg March 10, 2003 at 10:34 am

Well, at $68,500 for one share of Berkshire ( ), it’s not exactly accessible to your average investor. You only need like $500 to buy some Vanguard 500 (in an IRA).

john March 12, 2003 at 11:14 pm

Well that’s for the class A shares, you can get the class B shares for a bargain basement $2,250 or so…


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