Money and Me: Berkshire Hathaway vs S&P 500 ETF - Which should you choose?

SPEAKER_1 (0:01)

Best of Live Well, featuring Lance Alexander.

It's not just about money, it's about you, Money And Me, where wealth meets self-awareness. Only on Money FM 89.3.

Lance Alexander (0:19)

Good morning. It's a wonderful Thursday morning. If you don't take into account the haze, it's 10.06. Thanks for joining me. I'm Lance Alexander. If you had, say, $30,000 to invest today, what can you do with it? Should you buy shares in an SDI listed company, or should you spread your money through an S&P 500 exchange, traded fund, or an ETF? My guest today says one stock could lose 99% of its value and still have beaten the S&P 500 over the period since 1965

That stock is Berkshire Hathaway. Most of us know that Berkshire is the business group built by value investor Warren Buffett. Buffett was a long-term compounder and became a believer in buying quality companies. Berkshire owns companies across insurance, railways and energy, alongside share investments in names such as Apple, American Express and Coca-Cola. Greg Abel now leads the group as CEO, while Buffett remains as chairperson.

Berkshire owns a group of various companies. How different is it from owning a broad index like the S&P 500? And how should an investor weigh Berkshire against an S&P 500 ETF or even a high-yielding bond to decide where the $30,000 of yours can be channeled to? With us is Willie Keng, founder of Dividend Titan. He joins us on Money And Me on Money FM 89.3. Good morning, Willie. Welcome.

Willie Keng (1:54)

Good morning, Lance. Good to see you.

Lance Alexander (1:56)

Thank you, sir. Hey, thank you for coming in. Do we know how much Berkshire has gained since 1965? I know I'm putting you on the spot here. Under the guidance of Buffett and the late great Charlie Munger, compared with the S&P 500, even with that hypothetical 99% fail.

Willie Keng (2:13)

Very interesting, right? Because when Warren Buffett took over the textile company in 1965, he has actually compounded the business by 6 million percent. So to put things in perspective, if you had invested $100 together with Warren Buffett back in 1965, that $100 would have turned to over $6 million, just above $6 million today. So it was really impressive because he, I would say he has done it. I mean, if you compare to all the other fund managers or investors, the high profile investors which we know, Warren Buffett has done it for year after year. I mean, on average, he has compounded an average 19.7% returns per year.

Lance Alexander (2:56)

That's incredible, isn't it?

Willie Keng (2:57)

I mean, not many people could actually do it.

Lance Alexander (2:59)

No, no. I read that he used to buy small companies, and then he started to move away from that and decided to focus on quality companies. Like we just mentioned a few, American Express, Apple, Coca-Cola.

Willie Keng (3:11)

Exactly. And you know, one of that was actually influenced by his partner, the late Charlie Munger. And like what you have mentioned, Lance, the first public listed company where he really put in a new strategy was Coca-Cola when he bought in the late 1980s. So he put in a lot of money in it when Coca-Cola didn't, the shares didn't do well back then.

Lance Alexander (3:31)

Right. Do we have any idea how many businesses sit within the company?

Willie Keng (3:36)

So it's very interesting for Berkshire Hathaway, because if you look at the entire business, it has a combination of both public listed companies and private companies. So if you put them all together, it's roughly about 189 operating businesses today. So that includes the private businesses, which is outside of the stock market, which he owns. Now for the listed companies, he has anywhere between 50 to 70 public listed stocks in the fund itself. So he has been running that. Of course, he has a few very long term compounders, which he has kept for many years, which includes Coca-Cola, like what I've mentioned, American Express, Bank of America, Occidental Petroleum, which is an oil and gas stock, which he has held for a couple of years recently. And that has done very well for the company, for him.

Lance Alexander (4:28)

You know, if we could look at the returns, we won't go back to 1965, but what sorts of annual returns has Berkshire made in say the last couple of decades? Are we looking at maybe 10 to 12% growth during that time?

Willie Keng (4:43)

It's very interesting when you point it out, because when I was doing my research and if you read through his shareholders' letters, which he publicly shares his returns, if you had invested in different points since 1965, say 1965, in 1970, 1975 So if you had invested at the beginning of each decade, every five years, the average compounded returns, annualized returns you will get is roughly about between 10 to 15% per year. Very interesting, over the last 10 years. So if you have started investing, say, in 2015, from there, you have actually compounded about between 10 to 11% annualized returns. That means each year, you have gone about an average 10%. So if you look back today, if you have put some money with Berkshire Hathaway in 2015, that money would have gotten you an average 10% to 11% per year returns, which I thought was quite impressive.