In the comments section of yesterday's article, a reader mentioned a recent data that has been widely discussed by many financial media:

In the past 20 years, Buffett's average return is not as good as the S&P 500 index.

When this data was first released, it was quite surprising. However, when we delve deeper, we will find that there are many details behind this surprising data that are worth considering.

First of all, the return here actually refers to the return of Buffett's entire team rather than Buffett's personal investment return.

In the early years, to avoid the known natural laws that could bring unexpected consequences to the company, Mr. Buffett and Mr. Munger gradually handed over more and more business to their successor team to manage.

The successor team initially performed quite well, with their performance even surpassing the two founders at one point. However, the good times did not last long. Subsequently, the performance of the successor team was no longer brilliant, not only did it not surpass the two founders, but for a long time, it lagged behind the S&P 500. Meanwhile, the two founders continued to maintain their brilliant track record.

After this data was first exposed by the American financial community, many people worried about the future of Berkshire Hathaway once the two founders no longer lead this huge empire.

At this shareholder meeting, there was a scene where one of the two successors, Ajit Jain, shouted to the audience:

"No one is irreplaceable. I believe we have Tim Cook in the audience, and he has proven this point and set an example for many followers."

To be honest, I am very cautious about this statement.

In addition to team reasons, there are other reasons that can partially explain why Berkshire Hathaway's return has started to decline.

One of the reasons was well explained by China's well-known private equity manager, Dan Bin, in a recent interview:

One reason is that there has been a huge change in the leading companies of the US stock index. Now, the companies leading the S&P index are those few tech giants. And the technology industry is an area that Buffett does not touch much. In this situation, it will be increasingly difficult to outperform the S&P 500 relying on Buffett's traditional investment expertise.

Regarding this point, Munger also mentioned it repeatedly in his shareholder meeting speech. He said that the current investment market is no longer like it was when they were young, where good targets could be found with a little effort. Now, investment is becoming increasingly difficult.

Moreover, the size of Berkshire Hathaway is also getting larger and larger, and it is a huge challenge for them to maintain a return higher than the index with such a large size.

To cope with such challenges, investing in Apple was an attempt by the two founders.

Munger mentioned in response to a shareholder's question about investing in Apple stocks: The reason the company started to invest in Apple was out of necessity.

In a situation where investment is becoming increasingly difficult and wanting to find higher returns, it is necessary to try new breakthroughs and new areas. So, they chose Apple.

Munger also mentioned that when they initially invested in Apple, they were not so confident, and they were also exploring as they went along, and that's how they came this far.

From this phenomenon and these details, we can also see that it is not easy to achieve returns higher than the index in the stock market in the long term and steadily.

Therefore, the two founders have repeatedly emphasized on many occasions: For ordinary investors who do not have time to research companies, the best way to invest in the stock market is through index funds.

However, the vast majority of people are thinking of getting rich overnight, and are not willing to get rich slowly.

This Saturday (May 11th) at 8 p.m., we will hold an online discussion on Twitter. For details, please see the link below:

https://x.com/DaosViews/status/1787331370689446081

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