A few days after Berkshire Hathaway’s annual letter to shareholders disclosed the company’s lowest annual profit since 2001, Warren Buffett appeared on TV to suggest that longer-term investment strategies like index funds still stand the test of time.
Buffett, who is estimated by Forbes to have a net worth of $84 billion, told CNBC that passive investing—typically investing in a mutual fund or exchange-traded fund that tracks a major stock index like the benchmark S&P 500—”makes the most sense practically all of the time.”
In Buffett’s letter to Berkshire Hathaway shareholders, published last weekend, he recalled his first investment, $114.72 that he’d been saving for years and invested in a natural-gas company when he was 11.
“If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019,” Buffett wrote. That is a gain of 5,288 for 1.”
Buffett said on CNBC that $10,000 invested in an S&P 500 index fund back in 1942 would be worth $51 million today. The index’s returns have been so strong that two of Berkshire Hathaway’s stock pickers, Ted Weschler and Todd Combs, recently failed to beat the S&P 500. “Overall, they are a tiny bit behind the S&P, each, by almost the same margin,” Buffett said.
Berkshire Hathaway recorded a $25 billion loss in the last quarter of 2018. Part of that has to do with its investment in Kraft Heinz, which recently took a $15.4 billion write-down on brands such as Kraft and Oscar Mayer. Buffett said he was “wrong in a couple of ways” about Kraft Heinz, including “overpaying” for the acquisition of Kraft.