Ask HN: Why is Warren Buffet considered a great investor? | Hacker News Reader

Ask HN: Why is Warren Buffet considered a great investor?

9 pointsTekMol12 comments

I like watching interviews with Warren Buffet. He seems pretty smart and reasonable.

But I cannot get over the fact, that over the last 20 years, Berkshire Hathaway had a 7% annualized ROI while a simple Nasdaq fund had 8%.

He talks so much about being smart, analyzing assets, investing in things you know something about, waiting for good valuations, margin of safety etc etc. But what for? Investing in a more or less random selection of tech companies would have had a better return.

Am I missing something?

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Reason: he has the best total average annual investment return of all time for any individual. Over 20% since 1965.

https://www.fool.com/investing/2019/12/22/5-reasons-warren-b...

Mainly because of his track record - he has done very well over a very long period of time.

> over the last 20 years, Berkshire Hathaway had a 7% annualized ROI while a simple Nasdaq fund had 8%.

> He talks so much about (...) investing in things you know something about

This kind of answers your question. The most successful companies over the past 20 years have been in tech. Buffet admits that he doesn't understand tech and that's why he isn't willing to invest. He doesn't mind missing out on opportunities and he also isn't interesting in learning.

Tracking against an index is somewhat meaningful, but sort of misses the point. Berkshire Hathaway manages about $800 billion dollars in assets.

If you are trying to figure out what to do with your 401(k) or a portfolio of 10k-$10m, index funds are great. If you are in charge of managing almost $1 trillion in assets, it's a completely different ballgame. What's they've done is amazing - every move they make in the public markets is a huge signal and has market manipulating implications. You can't really compare them to an index fund and learn anything meaningful, unless you are comparing putting your $10k into either Berkshire or an index fund.

> over the last 20 years

20 years is an interesting time horizon for the NASDAQ -- it crashed in March 2000. If you go back 30 years you'll note that Berkshire actually outperformed NASDAQ by quite a bit.

Kinda true.

For the NASDAQ, I get a 12.57% ROI over the last 30 years. It went from 372 to 12999.

For Berkshire I get a 13.96% ROI over the last 30 years. It went from 6750 to 343525.

So around 1.5% more for Buffet. Still a close call, when you think about that he is the symbol for a great investor and put his whole life into valuation research.

Even if the average investor could reproduce this performance ... do they have the funds to make it worthwhile?

The lesson might still be: Don't try to valuate stocks. It is not worth the time.

I'm taking this one from Graham's book.

72 / 12.57 ~= 5.73

72 / 13.96 ~= 5.16

72 / 8 = 9

These are rule of thumbs on how many years it'll take for your money to double if you have that rate consistently. So on a 40 year time horizon, one would get:

40 / 5.73 ~= 7 doubles

40 / 5.16 ~= 7.75 doubles

Still way better than 4.44 doubles with 40/9

Hypothetical balances of 10K would be:

10000 * 2^7 = 1,280,000

10000 * 2^7.75 = 2,152,695

10000 * 2^4.44 = 217,056.7

Compound interest is one hell of a drug ;-)

1.5%/yr compounded for 30 years is about 45% more.

           1991       2021
          -----     ------
  NASDAQ $1,000 -> $34,627
  BRK.A  $1,000 -> $50,893

BTW, this is the same reason index funds can be so much better than mutual funds. If a mutual fund charges you a 1.5% fee per year and performs the same as an index fund over 30 years, the index fund will grow 45% more. Those fees really add up -- for them!

Out of curiosity, is there a good way to control for the time window in situations like this?

He's considered the greatest investor because he was able to apply Ben Graham's principles, and laterly Phil fisher during the prime years of value investing

I'd say in the past 20 years we've seen states propping up their markets more with QE so we don't see the same crashes. Information is also more available to all

Hindsight is 20/20 as they say and looking forward investing in "random tech stocks" is not likely to produce stellar returns. I think if there is a key takeaway it is:

It is a challenge to top index funds and most professional advisors have a hard time besting them.

https://www.nasdaq.com/articles/5-reasons-warren-buffett-did...

He was ahead of his time and came up with the use of financial indicators for investing. He hasnt done anything novel in 30 years, just has a very large capital base.

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