Why is Berkshire Hathaway significantly underperforming other stocks as of December 2021?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 366.6 million views in recent years.

In the answers below I focused on the following topics and issues:

  • Why is Berkshire Hathaway significantly underperforming other stocks as of December 2021? Is it even true to begin with?
  • Will China or another European country overtake the US in terms of economic and other forms of power?
  • How can you stop keeping up appearances?

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Source for all answers – Adam Fayed’s Quora page.

Why is Berkshire Hathaway significantly underperforming other stocks as of December 2021?

Well, they haven’t over a 5-year period.

Berkshire Hathaway Inc. Class A has done 28.10% over the last year (February 18 2021 until today) and 84.54% over 5 years.

The S&P500 has done 11.91% and 85.03%. The Dow 8.95% and 64.79%. The Nasdaq has done better, coming in at -1.07% and 134.66%.

Here is a good comparison of the BH stock and Cathy Wood’s ARK fund:

It is a good example of the tortoise and the hare because since this graph was made, BH overtook ARK for the last two years.

They weren’t doing as well as many tech stocks for years, just simply because of the type of business they are.

With that being said, the days of BH easily beating the S&P500 are long gone, because of the sheer size of the company.

It is more difficult to grow as fast as a bigger company. Buffett himself has admitted this:https://www.youtube.com/embed/4zpAgROp8dw?enablejsapi=1&iv_load_policy=3&mute=1

I think the stock is likely to perform similarly to the S&P500 long-term, only beating it during some time horizons.

The USA will never be overtaken nor supplanted by China, but it will be supplanted by another European power within NATO and the EU. Do you agree or disagree?

Firstly, predictions are a fool’s game. Who would have thought that:

  • In 2022 Japan’s economy would be about 1/4 the size of the US economy? Most people in the 1980s and early 1990s thought it would be bigger. Look at this article from 1995:

Or the start of this documentary in the 1980s:https://www.youtube.com/embed/8AElMJ7hKdg?enablejsapi=1&iv_load_policy=3&mute=1

  • China would become one of the most unequal societies in the world
  • The Republic of Ireland would overgrow many of the BRICS countries (Brazil, Russia, India, China, and South Africa) from 2015 until today when they were in crisis not long ago.
  • That the EU as a whole, which overtook the US in 2007–2008, would not be trillions of dollar behind the US, after Brexit and weaker growth.

So, nobody knows. It is very unlikely that any European state will overtake the US, as Germany, France and the UK are too far behind.

I do think it is unlikely that China will never displace the US because:

  • The demographics are awful
  • Long-term, authoritarian governments don’t work. Yes, in the long-term we are all dead, but that will probably be the outcome here as well. In the 1930s, many people thought the Soviet system was the future. Same with Japan in the 1980s
  • US and Chinese growth is already converging. This year, China will probably grow at 4%-5% versus 3.5%-4% for the US. The official Chinese growth target is to double by 2035 (4.7% per year average growth – higher in the early years and lower from 2028 onwards). Even if they achieve that, the US could still be ahead. From 2035 onwards, the demographic drag will be huge.

China’s economy could double in size by 2035 — and surpass the U.S. along the wayChina would surpass the U.S. as the world’s largest economy around 2027-2028, said an economist from the Bank of America.https://www.cnbc.com/2021/02/26/china-has-a-good-chance-of-doubling-gdp-by-2035-says-bank-of-america.html

  • It is likely the Chinese state has lied about their growth and GDP already, as most economists who study this believe.

The real deal Can China’s reported growth be trusted?Economists have constructed alternative gauges, some less flattering than othershttps://www.economist.com/finance-and-economics/2020/10/15/can-chinas-reported-growth-be-trusted

  • Even if China overtakes America in GDP terms, it is unlikely that will be maintained due to the demographic and other issues. Even if it is, they really need to be far ahead to displace the US in other domains such as militarily and financially.

As I said though, nobody knows. The most likely scenario for China overtaking the US is the West actually losing faith in itself, rather than anything China is doing.

The video below says it best.




How should I stop keeping up appearances?



Most gambling shops are actually in poor areas. That might make sense to some people because desperation increases gambling.
What makes sense to fewer people is that, on average, wealthier people are less likely to buy many types of luxury products.
The new rich, poor, and middle-class people are more likely to buy certain types of luxury bags and other products, at least in developed countries, compared to those who are wealthy and have retained that status for a long time.
There is a simple reason for this. Most people struggle to delay gratification so prefer present goods to future ones.
The wealthy learn to delay gratification and hold dividend-paying assets, or at least accumulate first and then seek a dividend.
The problem is we live in a consumerist culture. Most developed economies are based on the concept of the service sector.
This means that a high savings and investment rate isn’t beneficial to the vast majority of the economy.
The airlines, restaurants, hotels, big tech, and practically 98% of companies don’t want people to get wealthy if it means spending less on their products.
So, they spend billions on advertising, which tries to persuade people that “you only live once”, and over-spending will make you happy.
The only ways I have seen people overcome this are from
Experience. Most 18-year-olds assume that more consumerism will help make them happier. Over time, more people realize this isn’t true
Understanding you are in good company. When you start to network with more people, and you understand that most wealthy people don’t want to keep up with appearances, then you are less likely to copy that broke person who does. Trying hard to look wealthy on Instagram isn’t a long-term winning strategy.
Focusing on the long-term cost. Keeping up appearances has an impact on our mental health, but is also bad for our bank balances. Simple example. If two people in 1985 both got a 100k inheritance, and one person invested that money and one spent it, the difference in terms of net worth would be about $2.5m even adjusted for inflation. That could be the difference between early retirement or staying on in a job you hate.
Understand that most people don’t care anyway. We have our own lives and so many online influences, so it is unlikely that those people are really caring about you (or me) anyway.
Realizing that balance is possible. It isn’t a choice between extreme frugality and being flash.
We are also starting to see a backlash against some of the fake online culture, so more people will stop keeping up with appearances in the future.
One of the ironic reasons why we are seeing such a backlash is a lot of the best content online is from wealthy business people who (usually) encourage delayed gratification.
The only time when being flash makes sense is when there is a clear economic benefit.
For instance, in some countries, you can legally deduct costs such as business and first-class flights as a business owner.
In which case, it may make sense to reduce your taxable income in some years.

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Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 438.5 million answers views on Quora.com and a widely sold book on Amazon

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