Tags: Buffett | performance | index | funds

NYT: Buffett's Recent Performance Illustrates Advantage of Index Funds

Monday, 07 Apr 2014 01:41 PM

By Dan Weil

While shares of Warren Buffett's Berkshire Hathaway have vastly outperformed the stock market during the last 49 years, Berkshire's track record for the last five years hasn't been so impressive.

The imperfections of even such a skilled investor as Buffett demonstrate the attractiveness of index funds, writes Jeff Sommer of The New York Times.

From 1965 through 2013, Berkshire stock beat the total return of the S&P 500 index by 9.9 percentage points a year, according to The Times. But in three of the last five years, the S&P

So what does that tell us?

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"It shows how amazingly difficult it is to keep beating the market, even for a master like Warren Buffett," Salil Mehta, an independent statistician, tells Sommer. "And it suggests that just about everybody else should just use index funds and not even think about trying to beat the market."

Sommer notes that Buffett himself, in his latest annual letter to Berkshire shareholders, wrote that 90 percent of the money he will bequeath his wife should be invested in a very low-cost S&P 500 index fund.

Morningstar analyst Greggory Warren voices two major concerns about Berkshire. One is "the firm's ability to expand the business, given its current size and the need to consistently find deals that not only add value, but also are large enough to be meaningful," he writes on Morningstar.com.

Second is "the company's planning for the day when Warren Buffett no longer runs the show," Warren says.

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