Is Berkshire or S&P500 better? Choose the ultimate passive investment vehicle
Passive investments are very popular among investors. As a rule, they use ETFs - and especially the S&P 500 index - in which they simply invest and don't worry about anything else. But there are voices that argue that there are even better alternatives for exactly this purpose.
That alternative is legendary investor Warren Buffett's Berkshire Hathaway $BRK-B. Where does it stand in its performance relative to the index? Is it a better choice for investors?
But first, let's take a look at the two options individually.
S&P 500
The S&P 500 is one of the most well-known and widely followed indexes of large U.S. companies. It is compiled by the ratings agency Standard & Poor's and includes the 500 largest publicly traded corporations in the US. It represents approximately 80% of the total market capitalisation of the US stock market.
It is a broadly diversified index, covering all major sectors of the economy - technology, healthcare,…
I would be very happy if the cash that BRK is holding would stop being taken as a negative. The first thing I would focus on is the cash/asset ratio and that ratio is usually quite correlated, so don't just take the nominal amount (which also decreases with inflation).
Ignoring the fact that it's not holding somewhere under a straw man, but is currently making about 5%, they are holding a small share because of what their business is based on, and that's insurance companies. They have to hold on to some of that money to pay the insurance. If they have a problem with spending, it is only because all the quality companies they know are overpriced and that is definitely not a positive for SPY. There are simply stacking companies according to the marketcap and it grows thanks to about 1/3 of the companies, which are usually expensive and then BRK puts them on bread in a major crisis.
Another thing that is usually never mentioned in connection with the sp500 is what happens if a company drops out of the index? The value of the index doesn't change because another company just gets in? Is there no depreciation or other costs associated with this? (legal, transaction, etc.). I would be quite interested to know how many companies have dropped out of the index since BRK.B has been publicly traded, I would not be surprised if more than half of the companies are no longer there.
I wouldn't worry about Berkshire even after Buffett's demise. I don't think the company will change or make any other moves, Mr. Abel is very capable.