Berkshire Hathaway's Stellar Performance: A Deep Dive

Berkshire Hathaway's stock has been on a remarkable run over the past five years, outperforming major indices like the S&P 500 and Nasdaq. As of March 2025, Berkshire Hathaway's stock has tripled, achieving a 200% increase. This performance is a testament to the company's strategic investments, effective cash management, and proactive approach to divesting underperforming assets.

One of the key factors contributing to Berkshire Hathaway's outperformance is its successful investments, particularly in Apple. As mentioned in the podcast, "A lot of the performance, you can probably chalk up to how well the Apple investment worked out for Berkshire." This investment has significantly boosted Berkshire's returns, contributing to its overall performance.

Berkshire Hathaway's strategy of holding a significant amount of cash has also played a role in its outperformance. Despite concerns that cash can be a drag on investments, Berkshire has managed its cash effectively. As noted, "Nasdaq up about 170%, S&P up a little less than 140%, Berkshire Hathaway, 200%, a three-bagger over this five-year time, outperforming the tech stocks, outperforming the broad index." This indicates that Berkshire's cash management strategy has been beneficial rather than detrimental.

Berkshire Hathaway has also shown a willingness to divest underperforming assets, which has helped in maintaining its strong performance. For instance, "We saw that with the airlines during the COVID shutdowns. That may or may not have been a mistake, frankly, but I understand why Buffett got out of them." This proactive approach to managing investments has allowed Berkshire to avoid potential losses and focus on more profitable ventures.

Berkshire Hathaway's diversified portfolio across various sectors, including insurance, railroads, and consumer goods, has provided stability and growth. This diversification has helped Berkshire navigate market volatility and maintain strong performance.

In comparison, the S&P 500 and Nasdaq have also shown significant growth over the past five years, with the Nasdaq increasing by about 170% and the S&P 500 by a little less than 140%. However, Berkshire Hathaway's 200% increase highlights its superior performance relative to these indices. This outperformance can be attributed to Berkshire's strategic investments, effective cash management, and proactive approach to divesting underperforming assets.

Warren Buffett's investment strategy, particularly his focus on value investing and long-term holdings, has significantly influenced Berkshire Hathaway's performance. Buffett follows the Benjamin Graham school of value investing, which looks for securities with prices that are unjustifiably low based on their intrinsic worth. This approach has been a cornerstone of Berkshire Hathaway's success.

For instance, Buffett's investment in Apple has been a major contributor to Berkshire Hathaway's performance. As of March 2025, Berkshire Hathaway's stock has tripled over the past five years, outperforming both the Nasdaq and the S&P 500. This performance can be largely attributed to the success of Apple, which has been a significant part of Berkshire's portfolio. Buffett's ability to identify undervalued stocks and hold them for the long term has allowed Berkshire to benefit from Apple's growth.

Buffett's strategy also involves looking at companies as a whole rather than focusing on the supply-and-demand intricacies of the stock market. He chooses stocks based on their overall potential as a company, seeking ownership in quality companies that are extremely capable of generating earnings. This long-term perspective has allowed Berkshire Hathaway to weather market fluctuations and continue to grow.

For example, Buffett's decision to exit investments that are not performing well, such as the airlines during the COVID shutdowns and IBM, has helped Berkshire avoid significant losses. This proactive approach to managing investments has been crucial in maintaining Berkshire's strong performance.

Additionally, Buffett's philosophy of "just keep buying" and resisting the urge to sell during market downturns has been beneficial. He believes that American business is going to do fine over time, and this long-term view has allowed Berkshire to accumulate valuable assets and maintain a strong financial position.

In summary, Warren Buffett's investment strategy of value investing and long-term holdings has been instrumental in Berkshire Hathaway's performance. His ability to identify undervalued stocks, hold them for the long term, and make strategic exits when necessary has allowed Berkshire to achieve significant growth and outperform the market.