The question of whether Warren Buffett can beat an ETF with Berkshire Hathaway (NYSE:BRK-A) does not arise in the light of the past. The star investor achieved an average performance of over 20% per year. It has lost a bit of its luster in recent years. At least in terms of returns.
However, its out performance remains legendary. Also, Warren Buffett’s goal with Berkshire Hathaway isn’t to beat the broad market and an ETF every year. No, but to invest with the best possible long-term orientation. This also implies only buying shares when opportunities arise. And to be selective.
A pertinent question is whether Berkshire Hathaway can outperform an ETF. In any case, I see the potential in terms of the approach, but also difficulties and problems.
Can Berkshire Hathaway still beat an ETF?
In some ways, Berkshire Hathaway’s approach is designed to outperform the broader market. Contrary to an ETF, Warren Buffett invests primarily in a concentrated manner. One can define it as merely betting on the few good stocks from a cross-section. Of course he can sometimes be wrong. But he is an experienced and good investor, which is why he often manages to make sound business-oriented decisions.
One drawback Warren Buffett sees with Berkshire Hathaway compared to an ETF is size. With a higher three-digit billion amount as market value, the star investor is forced to only look at larger companies. He can hardly invest in small and mid-caps because they would effectively make no contribution to the overall return. But, to be fair: Even with an index fund, small and mid-caps hardly make a significant contribution to the total return. If the companies become big enough to be relevant, Buffett can invest there as well.
Perhaps another thing that keeps Berkshire Hathaway from a market-beating yield is Warren Buffett’s tech aversion. But the current stock exchange time shows that the tech segment is not always the most successful. In an ETF, there are primarily high-tech stocks as top positions. But in Apple, the Oracle of Omaha has invested in what it believes is a promising player in that market.
Yes, definitely possible
I think it’s possible that Berkshire Hathaway’s shares will still outperform an ETF in the future. Ultimately, I think Warren Buffett’s focus on quality and selective investment decisions should be significantly better than the cross section. Even if an index fund on the MSCI World or S&P 500 is not a bad option: know-how beats breadth and more possibilities.
It is still not guaranteed, and that is and remains a risk. Especially since Berkshire Hathaway depends on the expertise of Warren Buffett and his partner of almost 100 years. Therefore, consider which approach is more promising for you in the long term.