TRUSTNET
“Almost half of Berkshire
Hathaway’s book value is in non-
listed operating subsidiaries which
are not ‘marked to market’ and
therefore cannot be expected to track
the S&P,” he explains. “Buffett and
[vice chairman Charlie] Munger
berate themselves for failing to
invest in Google when the value of
its advertising to Berkshire’s own
businesses was plain to see.
“However, their investment in Apple
and this year’s disposal of Berkshire’s
local newspaper businesses confirm
there is no brittle inability to evolve.”
But what does Buffett have to say
about star manager outperformance?
“I’ve often been asked for investment
advice,” he said in a previous
letter to shareholders. “My regular
recommendation has been a low-cost
S&P 500 index fund.”
£1,000 INVESTED IN FUND UNDER
ANTHONY BOLTON VS INDEX
Fidelity Special Situations (£142,240.56)
MSCI United Kingdom (£34,355.18)
£160k
£140k
£120k
£100k
£80k
£60k
£40k
£20k
n8
Ja
0
10 per cent from the S&P 500 index.
So what is the secret to his success?
In his letter to shareholders for 2018,
Buffett referred to “a great collection
of businesses, a Niagara of cash-
generation, a cadre of talented
managers and a rock-solid culture”.
Andrew Vaughan, who aims to
follow Buffett’s approach in his CFP
SDL Free Spirit fund, would add to
this list a focus on economic moats,
access to cost-free capital in the form
of insurance premiums, an aversion
to selling businesses once they have
been acquired, “and supremely rational
The Sage
capital allocation”.
Of course, one man has managed to
Yet there are signs that even Buffett’s
consistently beat the index, and not just star may be on the wane – Berkshire
over 15 years, but 55: Warren Buffett.
Hathaway made 11 per cent in 2019
The Berkshire Hathaway chairman has compared with 31.5 per cent from the
made a compound annual gain of 20.3
S&P 500. However, Vaughan notes
per cent over this time compared with
this is not a like-for-like comparison.
“We must avoid those individuals who become
entrenched in views despite mounting evidence against
them and who have not surrounded themselves with
people who can provide challenge”
in 2019 after 40 years in the industry.
Thomas’s performance is more difficult
to track as he managed several funds,
some of which have now merged
with others or closed. However, he
more than doubled the gains of the
FTSE All Share during his time on
Artemis Capital between December
1986 and May 2002, and significantly
outperformed while managing AXA
Framlington Select Opportunities,
between September 2002 and the end
of last month.
Yet this is in the UK, where – as
passive advocates often point out –
tilting your portfolio towards smaller
companies is usually all it takes to
outperform the FTSE All Share. What
about the ultra-efficient US market?
For example, a study by S&P Dow
Jones Indices suggested the chances
of picking a fund manager capable
of beating the S&P 500 over the long
term appear slim at best: 85 per cent
of large-cap funds underperformed
the index over 10 years, a figure that
grows to 92 per cent over 15.
[ KEEPING IT UP ]
12 / 13
Cover story
Source: FE Analytics
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