Follow Up on My Berkshire Hathaway Post from Two Years Ago

March 11, 2010

A couple of bad years can really bring down your average annual rate of return.

Check out this graphic I posted nearly two years ago:

Now here’s that same graphic updated through 2009:

What a difference two years can make.

It is important to note that Berkshire is currently trading at 122,537 per share, which is up 23.53% so far in 2010. That brings the average annual rate of return back up to 22.89% over the last 42.19 years.

The question is: what will the stock return in the future? I’m not an analyst by any means but I would have to say that it would be tough for Berkshire to notch the kind of gains it has in the past. We have already seen this happen over the last several years. For instance, here is a comparison of Berkshire’s average annual returns over the first 5, 10, 15, and 20-year periods (beginning in 1968) and it’s last 5, 10, 15, and 20-year periods:

The bigger they grow, the harder it is for them to continue that growth. Each investment is a smaller and smaller piece of the pie.

2 responses to Follow Up on My Berkshire Hathaway Post from Two Years Ago

  1. Berkshire has held up so well because the US taxpayer bailed out 30% of their holdings with TARP money: Goldman Sachs, US Bancorp, American Express, Wells Fargo, etc.

    Berkshire is the largest shareholder of Wells Fargo, and Wells got 91% of the TARP money for all companies headquartered in California.

    “If I didn’t think the government was going to act, I would not be doing anything this week,” Buffett told CNBC after investing $5 billion in Goldman Sachs. “I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly.”

    I’m sure Congress would _not_ have passed the bailout if it wasn’t for Buffet’s fear mongering to the public and to Congress. We were sheep and believed what Buffet was saying — and guess what, Buffet went to the buffet at the expense of future generations of US taxpayers.

    If you want to stop lobbyist influencing policy in Congress — I suggest you start with Buffet — the biggest lobbyist of them all.

  2. The better measure of returns would be the rate of return over/under the market average … The numbers are a bit skewed because the annual rate of return for the last 10 years is about 0% so 5% doesn’t look so bad.