Buffett's Formula Still Works

The performance of Berkshire Hathaway shares over the past 32 years has been “nothing short of phenomenal” notwithstanding industry noise that Warren Buffett’s legacy is being challenged. This according to a recent article in MarketWatch.

“Buffett has done what few investors of any size have been able to accomplish,” the article argues, adding, “He has beaten the S&P 500, including dividends, for many decades and by many, many percentage points.” A track record that statistical experts say is attributed to skill rather than luck.

According to the article, the recent “chatter” that Buffett might be losing his edge is based on only a few years of underperformance and overlooks the underlying thesis of Buffett’s investing technique, which the article says “few commentators ever write about:”

The article underscores the fact that Buffett “always outperforms bear markets and always (during the last 20 years) underperforms bull markets,” but it’s the track record during down periods that counts. “Most individual investors,” it explains, “underperform the market because they get discouraged by large losses and pull out of equities near the bottom of bear markets. This leaves them mostly in cash when, without warning, a powerful bull-market train pulls out of the station.”

The article advises investors to remain focused on how portfolios perform during complete market cycles rather than within calendar years, adding that Buffett’s formula still works and “short-termism is a distraction.”

“That requires a decade or more of patience,” it concludes, “but it worked out for Buffett, and it can work out for you.”