"Our favorite holding period is forever" -- Does the famous quote from Berkshire Hathaway CEO Warren Buffett still hold true in 2021?
Oct. 28, 2021
There's no denying that value investing was made famous by Berkshire Hathaways' (NASDAQ: BRK:B) CEO Warren Buffet as well as his right-hand man Charlie Munger, but it has fallen out of favor with many investors in recent years. Growth is everything in this market, and everyone is looking for the next Amazon or Tesla. And who can blame them? One growth story like that can make all the difference to your portfolio.
So which is better, growth or value?
Growth stocks historically outperform significantly in bull markets, but this comes at a cost. With huge euphoric rises often comes large drops back down to reality -- we can see this with some significant falls since February 2021. Not to say these aren't great businesses, but they come with greater volatility which can lead to overpaying for a company. The same rarely happens with value stocks because financials take a more commanding role in the price action.
And how does Berkshire stack up?
For those unaware, Berkshire Hathaway is a holding company for multiple businesses, everything from consumer goods to insurance and finance. Essentially, it could be compared to an ETF of hand-picked stocks by a team with decades of investing experience and one of the best long-term track records of all time -- an aggregate performance of 3,300,000% since 1965, in case you were wondering. It acquires what it perceives to be great businesses with great management teams that they expect to deliver outsized returns in the long term. So if you don't know, now you know.
Primarily a value-oriented company, the majority of its investments are made up of household names and legacy brands; Apple, Coca-Cola, American Express, Bank of America, Procter & Gamble. But it's got some growth stories too. Visa, Mastercard, Amazon, StoneCo, Snowflake, and even EV manufacturer BYD (it's up over 3000% on that one) are some of the names it invests in, so you get the best of both worlds. It does some of the leg work for you, and you reap the rewards. Berkshire is up 25% year-to-date v.s. just under 22% for the Vanguard S&P 500 ETF (NASDAQ: VOO). Since 1965, Berkshire has outperformed S&P 500 returns, 18.3% v.s. 10.2%.
So is there any negative?
One concern brought to light by investors is the age of the two men at the helm. Munger is 97, and Buffett 91, but they have assured investors for many years that measures are in place if the unfortunate situation was to occur where health deteriorated, and one or both were to pass away.
We've pointed out that many of the companies Berkshire is involved with are legacy businesses. One rule that its management stands by and has done for years is to never invest in what you don't know and to invest in your circle of competence. This is definitely sound advice. But it does come at the expense of missed opportunities. Berkshire only took a stake in Apple in 2016, Amazon in 2019, and many of the other growth names are only recent additions in the last five years. It has a great investment philosophy that has continued to deliver outstanding returns for many years so it can't be faulted; the only criticism would be the lack of awareness for new and growing technologies.
Really though, despite that criticism, Berkshire stock is a great addition to any portfolio. If you're more growth-oriented, you can allocate more to that strategy, but I can see Berkshire delivering great returns in the long-term for many years to come.
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