To Own, or Not to Own: That Is the Question

 | Apr 29, 2013 | 11:00 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:








As we start the run-up to the Berkshire Hathaway (BRK.A/BRK.B) annual meeting this coming weekend in Omaha, I want to address the perennial question: Is an investor better off simply owning Berkshire stock, with the huge capital base issue that entails, or should you try to track the value added by mimicking the new purchases and sales that Berkshire Hathaway makes each year? Obviously, there is no way to know going forward, but recent history would suggest that the incremental approach would be the winner for your portfolio.

In order to reach this conclusion, I looked at the major trades disclosed by Warren Buffett each year in the annual report and compiled an equal-weighted portfolio of the major names on the date the report is issued. (Our effort is complicated because he has a pretty substantial "other" category of smaller weightings. Also, of course, we are not including complete acquisitions.)

One bright note is that in almost every trailing time frame, owning either Berkshire Hathaway or the incremental portfolio beat the S&P 500. So, at least historically, you are better off with Buffett than simply buying the index.

The table below summarizes how trading the new names each year did against simply owning a B share.

Berkshire vs. Incremental -- Summary

In the last year, a B share was better, but for all the previous time periods until you go back seven years, you wanted to simply own his disclosed portfolio. In fact, for most of the time periods, the new names did far better than Berkshire Hathaway as a whole. Even though he is making great new complete purchases such as Burlington Northern, which are reflected in B shares but not the incremental public portfolio, his capital base is simply so large that creating outsized excess returns is extremely difficult. He admits as much.

If I had to advise an investor on which approach to take, which I suppose I am doing right now, I would urge investors to track the incremental portfolio. Besides the issue of the huge capital base at Berkshire Hathaway, the reality is that Warren Buffett and Charlie Munger are approaching their expiration dates, and the stock will increasingly impound a death discount. Offsetting that, to be sure, is that many of the new names will be from Todd Combs and Ted Wechsler, who are respectable fund managers but not Warren. So the incremental approach will progressively buy into their portfolio, not Warren's. Of course, that will also progressively reflect in BRK over time as well.

Below is the detail of the analysis.

Berkshire vs. Incremental -- Detail

There are many, many caveats -- a couple names on which I could not get historical pricing, a few anomalies (look at the chart of BYD Company during the period he owned it) and so on -- but this is a good approximation of what your experience might be.



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.