Buffett, Benchmarks, and Why They Hardly Matter

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Historically, Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) — the conglomerate holding company run by Chairman and CEO Warren Buffett and Vice Chairman Charlie Munger — has achieved the rare and elusive feat of beating the market. The per-share book value of Berkshire Hathaway has increased more quickly than the S&P 500 equity index for every five-year period since 1965, boasting a compounded annual gain of 19.7 percent compared to 9.4 percent for the market, including dividends.

The track record is nothing short of astonishing, and it has earned Buffett a legendary reputation that would seem fictitious if it weren’t backed up by data. Research into Buffett’s investing strategy conducted by the National Bureau of Economic Research indicates that far from simply being lucky, Berkshire Hathaway has managed to produce outsize returns with minimal risk consistently for at least the past 30 years.

But behind every great success story, however sustained, are a couple of failures, and part of what has made Buffett so successful is his capacity to recognize and admit to mistakes. Every dollar he loses is an investment in the education and wisdom necessary to make better decisions in the future.

Over a long enough time period, though, it’s reasonable to expect that even savvy investors like Buffett and his team will make a prolonged series of errors — or at least, sub-par victories — that will put a lasting blemish on Berkshire Hathaway’s sterling record. And according to some analyst estimates, that may have happened over the past five-year period.

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