Warren Buffett Under-performs S&P 500 (Over 10 Years) & Loses $25 Billion Leading To Directive That He Should No Longer Be Put On Pedestal & Worshipped Like Deity

Muted response in Dalal Street to investment letter

Normally, reading Warren Buffett’s investment letters to the shareholders of Berkshire Hathaway is a much cherished event and hallowed tradition on Dalal Street.

Intellectuals and novices from across the city gather under the Banyan Tree near Shyam’s Tea Stall.

The intellectuals wax eloquent about esoteric investment concepts while the novices listen with rapt attention and take notes.

However, this year, the response was muted.

Neither the intellectuals nor the novices were much excited about the investment letter.

Samir Arora, an eminent intellectual, noted this fact.

very little chatter this year about the Buffett letter.
Read it yourself since no one is commenting much.

— Samir Arora (@Iamsamirarora) February 24, 2019

What’s wrong with the Investment world? Only 3 groups have forwarded the Berkshire letter till now. I am disappointed. #Berkshire

— Ravi Dharamshi (@ravidharamshi77) February 23, 2019

Fortunately, some intellectuals stayed loyal to tradition …..

And now, I shall spend the remainder of the morning reading the just-released Warren Buffett annual letter to the shareholders of Berkshire Hathaway. As I do every year, I suggest you read it too. https://t.co/c8g6yzaqCV

— Downtown Josh Brown (@ReformedBroker) February 23, 2019

…. though others were not impressed.

Can you post a bullet point synopsis for us? Maybe 140 characters or so? It’s all I can read these days . . . I struggle with the 280 character tomes.

— Aloha Trading (@AlohaTrades) February 23, 2019

Can someone record it onto a podcast so I can listen to it at 2x speed?

— Trevor Cummings (@SendToTrevor) February 23, 2019

at the risk of sounding contrarian / hot take / millennial / techy… he’s lost his fast ball. Owning Kraft Heinz and Coke and a bunch of banks is such a 1970s view of the world, most of those cos won’t exist next generation. His tech ideas were IBM ? and buying AAPL at its peak

— Brandon M (@B_Maz) February 23, 2019

(file pic of Dalal Street intellectuals discussing investment concepts)

Berkshire Hathaway under-performs S&P 500 over 10 years

The reason for the sorry state of affairs leading to the disinterest in what Warren Buffett is saying or doing is because Berkshire Hathaway reported a colossal loss of $25 Billion and also under-performed the S&P 500 over a long period of 10 years.

Kraft Heinz, the blue-chip behemoth, was one of the culprits.

Berkshire Hathaway lost $4 Billion in just one day and $10 Billion overall.

Ouch! Buffett’s Berkshire Hathaway has underperformed S&P 500 for past decade. Berkshire CEO laments “sky-high” prices for acquisitions. An eye-popping $25bn net loss in the quarter was driven by $27.6bn in unrealized losses from the investment portfolio. https://t.co/1TsFtGr5RO pic.twitter.com/JXYfYa48xP

— Holger Zschaepitz (@Schuldensuehner) February 23, 2019

Total Return, Last 15 Years…
Berkshire Hathaway: +224%
Nasdaq 100: +428% pic.twitter.com/WaoBMiQCCz

— Charlie Bilello (@charliebilello) February 23, 2019

But @CNBC will spend tomorrow morning doing their annual kneel and bob for Warren.

— Bernard J LoVerde Jr (@BernieLoVerde) February 24, 2019

Nobody can beat an Index Fund, not even Warren Buffett

Warren Buffett has himself been consistently advising investors to invest in passive Index Funds rather that dabble with individual stocks.

“Consistently buying an S&P 500 low-cost index fund is the thing that makes the most sense practically all of the time,” the Oracle of Omaha opined.

“The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently,” he added.

He further explained that costs really matter in investments. Even a 1 percent charge for fees makes an enormous difference to the returns that investors can rake in over long periods of time.

Warren Buffett says he can't beat the S&P 500 https://t.co/bbCbjxwZPO pic.twitter.com/lW9xvnDfPh

— CNN Business (@CNNBusiness) February 25, 2019

Between stocks and bonds for the next 10 years I would choose the S&P 500 "in a second," Warren Buffett says. https://t.co/PXy5J5kj6T pic.twitter.com/jTiqHnh0Ws

— CNBC (@CNBC) February 25, 2019

Warren Buffett says if you invested $10,000 in the S&P 500 in 1942, you'd have $51 million today https://t.co/4RD7ZGPHTQ

— CNBC (@CNBC) February 25, 2019

Even BSE Sensex gave 55x return over 30 years

Warren Buffett’s advice with regard to the S&P 500 applies also to our own humble Sensex.

The Sensex has given a mind-boggling gain of 55x over the past 30 years and outperformed even living legends like Rakesh Jhunjhunwala and Radhakishan Damani.

When I came to the stk mkt in 1989, the Sensex was about 800 at that time. Today it is closer to 36k, gone up 50-60X. All kind of events have taken place in last 30 yrs, from Kargil to DeMo to fin crisis. But the index always finds its way higher – Ramesh Damani#indexfunds

— India ETFs (@IndiaEtfs) February 5, 2019

RAMESH DAMANI: Index Has Compounded 18-20% Over Last 25 Years

— BTVI Live (@BTVI) July 4, 2016

Don’t put Warren Buffett on a pedestal and worship him like a Deity: Prof Aswath Damodaran

Prof Aswath Damodaran, a Global authority on value investing, has written a detailed piece titled ‘The Perils of Investing Idol Worship: The Kraft Heinz Lessons!‘ in which he has explained the reasons behind the investment fiasco which caused Warren Buffett and other eminent investors to lose Billions of Dollars of their money.

In the article, the Prof has hauled up intellectuals who venerate Warren Buffett and clone his moves.

“Berkshire Hathaway’s lead oracle is Warren Buffett, venerated by some who track his every utterance, and try to imitate his actions,” the Prof has stated.

“Warren Buffett and 3G’s key operators are human, and are prone to not only making mistakes, like the rest of us, but also to have blind spots in investing that hurt them,” he added.

The Prof lauded Warren Buffett for being open about his mistakes, and how much they have cost him and Berkshire Hathaway shareholders.

He also noted that the Oracle has been candid about his blind spots and has made imperfect investments like Wells Fargo, Coca Cola and Kraft-Heinz.

“I admire Buffett’s adherence to a core philosophy and his willingness to be open about his mistakes,” the Prof admitted.

However, he faulted the legions of investors, analysts and journalists who treat him as an investment deity, quoting his words as gospel and tarring and feathering anyone who dares to question them.

“He is ill served by some of his devotees, who insist on putting him on a pedestal and refuse to accept the reality that his philosophy has its limits, and that like the rest of us, he has an ego and makes mistakes,” the Prof said.

“If your investment views are dogma, and you believe that your path is only the correct one to success, I wish you the best, but your righteousness and rigidity will only set you up for more disappointments like Kraft Heinz,” he added in a firm tone.

Kraft Heinz's stock price collapse was shocking, but the shock was amplified by the pedigree of its lead investors – Berkshire Hathaway & 3G. It is a cautionary tale that investors, no matter how great, make mistakes & have blind spots. https://t.co/K9BcAc1H9x pic.twitter.com/sE0WpnCqvp

— Aswath Damodaran (@AswathDamodaran) February 27, 2019

Conclusion

It is a fact that we have hitherto been following the practice of “shameless cloning” and “blind buying” and have burnt our fingers very badly in the process. It is better if we now follow Prof Aswath Damodaran’s advice and learn to think for ourselves and make independent decisions. Hopefully, we will then have better luck in our investment journey!