Buffett's Favorite Fund Did Quadruple in 10 Years-But Berkshire Is Now the Harder Bet

The S&P 500 is still the cleaner default

The real choice here is simple: own the scoreboard, or bet that one manager can keep outsmarting it. For most investors, the scoreboard still wins. Buffett has said "the best thing" for most investors is to own the S&P 500 index fund. He also said 90% of the cash bequest for his wife will be invested in an S&P 500 index fund. That is not a throwaway line. It is a case for owning a broad, low-cost slice of American business instead of relying on one complex empire.

Berkshire is now being judged under that standard. This was the first annual meeting without Warren Buffett at the helm, and the tone leaned more toward operations than philosophy. Greg Abel stressed execution, efficiency, and disciplined capital deployment. That may be exactly what Berkshire needs. But investors are not waiting long for the answer: Berkshire has trailed the S&P 500 by more than 30 percentage points since Buffett signaled his exit last May.

Abel has a real opportunity if Berkshire can shift from a Buffett narrative to an operating advantage. But for now, the easier bet still looks like the index unless Abel can back up the handoff with durable results.

Why the index keeps compounding

The return engine is structural, not clever

The S&P 500 is not a stock. It is a rule-based way to own a rolling basket of large U.S. public companies, with price returns and reinvested dividends doing much of the compounding. That matters because the total return figure reflects real business output, not just price chatter.

The record supports that view. Since the index expanded to 500 companies in 1957, it has delivered roughly 10% average annual return. Over the past 40 years through December 2025, that figure rose to 11.5%. You cannot invest directly in the index, but low-cost funds are designed to track it. That is the appeal: investors are buying the scoreboard rather than trying to outguess one manager.

The index trims dead weight automatically

The S&P 500 also has a built-in cleanup mechanism. It is always made up of roughly 500 of the largest U.S. companies, so weaker businesses can be removed and stronger ones added. Investors do not have to carry dead weight forever. That helps explain why the index has kept compounding across major disruptions and changing market leadership.

For most portfolios, that is the harder edge to beat: broad exposure, automatic renewal, and less reliance on any one decision-maker.

Berkshire's success story now needs proof

The market is pricing the handoff, not just the legend

Berkshire's appeal has always carried a legacy premium. After the first annual meeting without Warren Buffett at the helm, that premium became harder to take for granted. Investors are no longer listening only to folklore. They are watching whether Greg Abel can deliver execution, efficiency, and disciplined capital deployment.

Berkshire has trailed the S&P 500 by more than 30 percentage points since Buffett signaled his exit last May. That gap matters. It suggests investors have shifted from "trust Warren" to "show me Greg." The question is not only whether Berkshire can keep growing. It is whether it can still deploy its huge cash reserve with the same discipline that defined Buffett's era.

Abel has started answering that question the right way. He described Berkshire as an efficient conglomerate, said he does not expect the company to break up or divest subsidiaries, and pointed to an existing leadership group, including Ajit Jain, Katie Farmer, and Adam Johnson, as a source of continuity.

The bear case is straightforward too. A large balance sheet is only an advantage if the next capital allocators can put it to work. If deployments look hesitant or less discriminating, Berkshire may trade less like a special compounder and more like a very large, very safe holding company.

What makes sense for most investors now

For most investors, the practical map is still simple: keep a low-cost S&P 500 fund as the core holding, and treat Berkshire as a satellite only if you specifically want to underwrite the next manager. Buffett said "the best thing" for most investors is to own the S&P 500 index fund, and that remains the common-sense default.

Berkshire is now in a test phase after the first annual meeting without Warren Buffett at the helm, with the spotlight on execution and capital allocation. If upcoming results show stronger operations and better use of cash, the Berkshire case can improve quickly. Until then, the boring system Buffett endorsed for most people still looks like the cleaner long-term position.