Fynsa
In my last article ("Cows vs. experts: the secret is in the pasture".), we explored the difficulty of beating the market, how (even) more challenging it is to maintain consistent returns over time and some common bad practices to show these achievements artificially. We did it from a playful point of view, using, among other examples, two Warren Buffett stories: his well-known analogy about coin flipping and his famous bet against a group of active investment managers.
Days after publishing that note, on May 3, Warren Buffett announced that he will step down as CEO of Berkshire Hathaway at the end of the year. Although he will continue as chairman of the board and majority shareholder, the news - which came as a surprise even at the age of 94 - marked a symbolic milestone: the end of an era for one of the most influential investors in history.
Taking advantage of this moment, it is worth reviewing his legacy and continuing with the point we mentioned earlier: the importance of consistency. consistency over time... and -why not to say it- the power of time. the power of time.
A story of courage.... composed
Buffett completed his studies in 1951, where he was mentored by Benjamin Graham, with whom he later worked. In 1965, he bought a stake in Berkshire Hathaway, then a textile company in crisis. From there, he transformed it into what it is today: a holding company valued at more than USD 1.15 trillion. more than USD 1.15 billion 1.15 trillion (i.e. more than one trillion dollars).
The most incredible thing? Between 1965 and 2024, Berkshire Hathaway generated a cumulative return of 5,502,284%.5,502,284%, compared to 39,054% of the S&P 500 over the same period. That equates to a compound annual return of 19,9%compared to 10,4% of the index.
Simply put: whoever invested USD 100 with Buffett in 1965 would be a millionaire today. An extraordinary case of shareholder value creation, and one that catapulted Buffett to the podium of the richest people on the planet.
The winning formula
At this point, it is worth noting once again the elements that were finally the winning combo:
Negative returns did exist. Sometimes they were even greater than those of the index. But what sets Berkshire apart is the ability to maintain a steady strategy over time, with discipline and resilience. Consistency doesn't mean not failing: it means staying in the game and allowing the compounding effect to do its work.
60 years is an eternity in the markets. And achieving good returns early on builds a solid foundation. So solid, that even if Berkshire's stock were to fall 99% on the first trading day of 2025, Buffett's entire management team would still have outperformed the S&P 500..
And in recent years?
It's true: looking at returns from 2003 to date, Berkshire has failed to outperform the index. But context matters. If, instead, we look at the data through 2002, Berkshire accumulated a return of 587.000%compared to 3.662% of the S&P 500.
Please take the time to play with these numbers as much as you need to.
If we had invested the USD 100 mentioned at the beginning in Berkshire Hathaway, we would have about USD 600 thousand in 2003, while if we had invested in the S&P 500, we would have about USD 4 thousand.
If we update that number to today, even though Berkshire Hathaway has underperformed the S&P 5000, we would have more than USD 5.5 million, while in the S&P 500, close to USD 40 thousand.
In other words, the asset that yielded the least would have generated USD 4.9 million and the one that yielded the most, around USD 36 thousand. This numerical game, although basic, allows us to reaffirm the importance of the composition of returns, and the importance of consistency.
Trust in the process
In equities, returns vary. Sometimes you win, sometimes you lose. What Buffett leaves us with is not a magic formula for beating the market, but a deeper lesson: trusting the process, having patience and sticking to a sound strategy can pay extraordinary dividends..
In closing, I take up a line from the beginning that bears repeating: "Anyone who would have trusted Buffett by investing $100 when he took over as CEO of Berkshire Hathaway would be a billionaire today....".
Gabriel Haensgen
Senior Analyst Fynsa Financial Funds AGF
