This past weekend was the ‘Woodstock for Capitalists,’ otherwise known as the Berkshire Hathaway annual meeting, where each year, tens of thousands of shareholders descend on Omaha, Nebraska to hear from the Oracle of Omaha, Warren Buffett.
I’ve never attended myself, but I’ve read the book and watched the documentary (a trailer can be seen here). Before Airbnb, it was next to impossible to find a place to stay and I don’t really like crowds. And, oh, then there’s the one last detail that matters: I don’t own shares of the stock.
The stock was first recommend to me when I was in middle school by a kid whose father was a broker at a local firm. I remember that the stock was trading for a few thousand dollars per share, well more than everything else in the newspaper at the time (yes, the newspaper). I would have bought the A class shares, which traded Friday for an even quarter million apiece.
When I got out of college and started working in 1995, the stock had grown tenfold and was now $30,000 per share – well more than my annual salary at the time. I couldn’t afford the A class shares, but Buffett created B class shares to stop some financial services companies from creating unit trusts that allowed little investors to buy in. The new B class shares were still $1,000, so I still didn’t buy in.
Over the years at Acropolis, I’ve looked at it many times, but it hasn’t fared better than the S&P 500 in recent years. To be sure, you can find periods where it beat the index, but since the 2008 financial crisis, it’s underperformed.
It’s not completely surprising that Berkshire has underperformed – Buffett himself has said for at least 20 years that as they get larger, it’s harder and harder to find large enough opportunities to make a difference. At the meeting over the weekend, he even said that Berkshire may adopt a dividend since cash is stacking up faster than he can use it.
I’m a huge Warren Buffett fan, but I don’t regret not buying the stock over the years. I like to think that I’d say the same thing even if Berkshire had outperformed.
My rationale is simple: I prefer systematic investing that is rules-based and relies less on the judgment of just one person. It sounds a little silly when that one person is Warren Buffett, the greatest investor of all time, but I’ve wondered for years how much longer he’ll be able to run the show. I was interested to read that he said he might install a new CEO while he’s alive so that he can focus on investing their massive cash pile.
A paper by some researchers from the fund manager AQR has shown that Buffett’s returns could be replicated by applying some leverage to value and quality factors (more on factors here and here).
Some of the mutual funds managed by Dimensional Fund Advisors (DFA) that focus on large cap value stocks have matched Berkshire’s performance over the past 15-years (the longest period available at home last night, from Morningstar’s website, as of Friday). I think that some of the funds that we use should fare better in the future given that they include other factors like momentum, but the future is always hard to predict.
As it happens, I’m heading to Chicago for the next few days to AQR University, to learn more about their current research and will head to DFA in the fall to hear from them on the same subject. As I see it, I get to go to two Woodstocks for Capitalists.