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Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

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Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#31

Post by refurb »

adammarples wrote: post #23
refurb wrote: post #20

Earlier quoted context omitted.

I’m not sure either of statements really excuses the underperformance. You either beat the market or you don’t. It’s relative. He could lose money but if he loses less than the broad market, he outperformed. And sitting on a pile of cash is a negative, a lost opportunity. That said 20 years is arbitrary, however it’s not an insignificant period of time. It’s two decades! But my final point is that Buffet isn’t an inv…

When making a comparison like that, the endpoints really matter. How many of the last 20 years has he been beating the market? And the next 10? Today is at an extreme in valuations and of course everyone who is betting on a fall will look bad until suddenly they don't. It's currently not possible to say whether sitting on cash is stupid or wise, the next few years will bear that out one way or another.

The next 10? I don't know, I can't predict the future. And finding out 10 years from now he didn't beat the market for 30 years, is half a lifetime of investing (most of your adult life). Not like you can go back and fix that.

It's 20 years of failing to beat a simple "invest in indexes and forget it". So basically an adult who followed index investing for the last 20 years can say "I have higher returns than Buffet".

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#32

Post by blagie »

Detrytus wrote: post #29
blagie wrote: post #19

Earlier quoted context omitted.

That's not very hard in an economy which has grown as quickly as Poland's. Find another country which will have the same growth for the next 20 years, invest there, and you'll see similar results.

Poland's economy is booming, but the Polish stock market is not. I mean, it peaked in 2007/2008, and hasn't been able to beat that All Time High since. https://stooq.com/q/?s=wig20&c=20y&t=l&a=lg&b=0

One of the problems is that for smaller economies (including Nigeria, below), investing requires local knowledge. A US index fund will roughly track the US economy. The 20 largest local companies in Poland? Not so much.

In other words, it's a place for active trading. Investing in the former Soviet companies at the time of the collapse of communism would have been a bad bet (but reflected in the WIG20). Investing in the startups displacing them? Great bet.

Real estate too. Having Polish land valued at a tiny fraction of German land in 1990 was clearly not long-term sustainable.

My expectation is that the Polish per-capita GDP will reach that of Western powers in at most a decade or two, which gives a natural 4x return over baseline. It's not the astronomical return of post-Soviet era, but it's still large.

In other words, smaller economies are a good place for active trading. I don't do it since if I did without local knowledge, my returns would be similar to the 1x of the WIG20, rather than the 10x of active traders in Poland.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#33

Post by RishitJain »

TheAlchemist wrote: post #5

As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface…

Huge fan of Buffett myself. Of course, BRK could outperform SPX in the years to come, but the probability is stacked against it. The larger and more diversified the company becomes, the more its returns start mirroring the broader market.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#34

Post by RishitJain »

WheelsAtLarge wrote: post #30
TheAlchemist wrote: post #5

As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface…

I would also add that the portfolio he manages is over 350 billion. That's a huge chunk of money to invest. The number of places where he can invest without overpowering the investment is very limited. He's mostly left with big companies that aren't growing as fast as the rest of the market. That's my guess.

Exactly.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#35

Post by RishitJain »

goodbyesf wrote: post #7
TheAlchemist wrote: post #5

As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface…

> As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: The beauty of financial 'journalism'. They choose arbitrary points of comparison to fit whatever they are trying to 'sell'. Wonder why 20 years and not the past 21 years or 25 years or 30 years? > - stock market returns were abnormally high for the past 15 years Which was expected since we had QE and…

Nothing to sell. Just making the point that active investing is hard.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#36

Post by RishitJain »

refurb wrote: post #20
TheAlchemist wrote: post #5

As a huge fan of Buffett, I must point to the fact that can materially change this comparison in the years to come: - stock market returns were abnormally high for the past 15 years - Berkshire is sitting on a huge pile of cash, ready to invest This is a very similar scenario to what people were saying in 1999 - Buffett is done etc. I highly recommend reading his biography - "The Snowball" and especially the preface…

I’m not sure either of statements really excuses the underperformance. You either beat the market or you don’t. It’s relative. He could lose money but if he loses less than the broad market, he outperformed. And sitting on a pile of cash is a negative, a lost opportunity. That said 20 years is arbitrary, however it’s not an insignificant period of time. It’s two decades! But my final point is that Buffet isn’t an inv…

As always, Buffett said it best, "By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."

More here: https://monevator.com/warren-buffett-passive-investing

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#37

Post by RishitJain »

refurb wrote: post #31
adammarples wrote: post #23

Earlier quoted context omitted.

When making a comparison like that, the endpoints really matter. How many of the last 20 years has he been beating the market? And the next 10? Today is at an extreme in valuations and of course everyone who is betting on a fall will look bad until suddenly they don't. It's currently not possible to say whether sitting on cash is stupid or wise, the next few years will bear that out one way or another.

The next 10? I don't know, I can't predict the future. And finding out 10 years from now he didn't beat the market for 30 years, is half a lifetime of investing (most of your adult life). Not like you can go back and fix that. It's 20 years of failing to beat a simple "invest in indexes and forget it". So basically an adult who followed index investing for the last 20 years can say "I have higher returns than Buffet"…

Exactly my point in the article.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#38

Post by RishitJain »

Detrytus wrote: post #16

So it seems that Buffet, ironically, does not follow his own advice of simply buying an ETF and holding it. Also, I know some "celebrity traders" in Poland who advertise their IKE (think of it like a Polish version of Roth IRA account), where out of 170,000 PLN cash savings over 10-12 years they can get 1,800,000 PLN (for the average return of 37% per year) - how's that for beating the market?

37% CAGR over a decade? Hope people aren't falling for that.

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#39

Post by RishitJain »

francisofascii wrote: post #26

Anyone with a well balanced portfolio of asset classes lost to the "market", which I suppose we mean the S&P 500. Bonds prices were killed the last year or two. I would argue the S&P, being about 25% tech stocks, is not as diversified as people think. Tech did great the last 20 years, and maybe they will continue. But it is risky to JUST invest in the S&P.

The longer you stay invested, the less risky it becomes.

Following is the percentage of periods that earned a positive return in the stock market, for different holding durations:

1 day: 52% 3 months: 61% 1 year: 68% 3 years: 75% 5 years: 80% 10 years: 88% 20 years: 100%

Re: Warren Buffett Has Underperformed the Stock Market for the Last 20 Years

#40

Post by RishitJain »

danw1979 wrote: post #21

From the data in the article, the underperformance has really set in during the last 6 years. It’s a progressive decline. Pandemic market distortion maybe ? Warren and Charlie just getting long in the tooth and slowing down ? Are the up-and-coming managers at BH (are there any ?) calling more of the shots and getting it wrong ?

More likely a result of the size of BRK. At over $700 bn, there are few investment opportunities that can really move the needle.
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