Warren Buffett’s days of “eye-popping performance” are over. So says the man himself in Berkshire Hathaway’s latest annual shareholder letter (disclosure: I own Berkshire shares).
Once, Berkshire “had an abundance of candidates to evaluate”, writes Buffett. If he missed one, “another always came along”, but those days “are long behind us”.
Increased competition is one reason, but the main problem is size – with a market capitalisation of $890 billion, Berkshire is too big.
Any purchase, even a major one, will only make so much difference. Thus, Berkshire won’t trounce the indices like it used to; anything other than “slightly better”, says Buffett, is “wishful thinking”. As it happens, Berkshire is handily outperforming US indices in 2024.
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Over the past 20 years, however, Berkshire’s returns are almost identical to the S&P 500. If there’s little chance of outperformance, should investors just buy the index instead?
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Ideally, yes, but the answer is more complicated in Ireland. Our deemed disposal rules mean investors pay 41 per cent tax on exchange-traded fund (ETF) gains after eight years, even if they don’t sell the fund. In contrast, deemed disposal doesn’t apply to individual stocks, allowing gains to compound for decades.
Buying single stocks is risky, but Berkshire is a diversified conglomerate and a play on the wider US economy. Consequently, Berkshire’s name often crops up in online debates among investors seeking alternatives to ETFs. It’s often said you shouldn’t let the tax tail wag the investment dog, but Ireland’s system means some investors will do just that with stocks such as Berkshire.
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