Can Berkshire Hathaway Play Catch-Up with the S&P 500 This Year?

Berkshire Hathaway

Berkshire Hathaway (BRK-B) has an enviable long-term track record compared to the S&P 500 (SPY). Berkshire outperformed the S&P 500 by a wide margin of 10.8% between 1965 and 2018 on an annualized basis. The calculations are based on data from Berkshire’s annual report. The S&P 500’s returns include dividends.

Berkshire’s outperformance versus the S&P 500 has narrowed over the last decade. Read Can Warren Buffett Outperform the Markets in 2019? for more analysis.

Can Berkshire Hathaway Play Catch-Up with the S&P 500 This Year?

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Price action

Berkshire saw downward price action of 1.6% in the first quarter of 2019. The S&P 500 gained 13.1%, while the NASDAQ Composite Index (QQQ) gained almost 16%. The Dow Jones Industrial Average (DIA) also saw double-digit gains in the quarter.

Berkshire has gained some traction in April. Its stock is now up 4.5% for the month and 2.9% for the year. Despite its April price action, though, Berkshire’s returns are trailing those of the S&P 500. Apple (AAPL), Berkshire’s biggest holding at the end of the fourth quarter of 2018, has bounced back this year after losing more than 30% in the fourth quarter. However, Berkshire’s price action has remained subdued.

Cash pile

How Berkshire deploys its massive cash pile will be crucial to its ability to play catch-up with the S&P 500. The portion of the company’s cash that’s mainly invested in short-term treasury papers yields very little and could be dragging on its stock price. Berkshire’s fourth-quarter buying activity disappointed the markets, as its net buys were quite low despite the sell-off. Given Buffett’s investment style, the markets expected Berkshire to double down on stock purchases in the fourth quarter.