Buffett Versus The S&P Tech Sector

By datatrekresearch in Blog

With the Berkshire Hathaway annual meeting this past weekend, we got to wondering about BRK’s long run historical performance versus the US large cap Technology sector.  Buffett and Munger are generally averse to buying tech stocks, with Apple being a notable exception. Does that predilection help or hurt their long run performance? 

We pulled the price history data for BRK and XLK (S&P 500 Tech) and, whether you are looking at 5-, 10-, 15- or 20-year price returns, large cap US tech has always outperformed Berkshire Hathaway:

• Last 5 years: Tech outperformed by 58 percentage points. XLK is up 122 percent over this time span, and BRK is up 64 percent.

• Last 10 years: Tech outperformed by 188 percentage points. XLK is up 382 percent, and BRK is up 194 percent.

• Last 15 years: Tech outperformed by 239 percentage points. XLK is up 513 percent, and BRK is up 274 percent. 

• Last 20 years: Tech outperformed by 275 percentage points.  XLK is up 842 percent, and BRK is up 567 percent.

To put some context around these numbers, if you had invested $10,000 in US large cap tech 20 years ago you would have $94,200 today even before adding in the effect of dividend reinvestment. The same $10,000 in Berkshire would yield $66,700, 29 percent less than the investment in XLK, and BRK does not pay a dividend. 

Now, there are periods where Berkshire absolutely does outperform US large cap Tech.  The chart below shows the relative 1-year trailing return between BRK and XLK from 2010 to the present. When the blue line is above the x axis, Berkshire’s price return has exceeded that of the S&P 500 Tech sector by the number of percentage points noted in the y axis.  When the line is below the x axis, Tech has outperformed over the prior year. 

Two points about this data:

• Since 2010, US large cap Tech has, on average, beaten Berkshire by 3.6 percentage points on a price basis over any given 252 trading day holding period (1 calendar year). Some of this is due to the sector’s strong relative outperformance in 2011 (Greek Debt Crisis) and 2020 (Pandemic Crisis), but even in the mid-late 2010s Tech was a generally reliable outperformer. 

• Berkshire tends to beat Tech either on a snapback in financials/value stocks (2010, 2013, 2021) or when rates are rising quickly, hitting high valuation names (2022).

As for why an index fund like XLK should be able to reliably beat Warren Buffett over long-term holding periods, we think it is simply because this is not a fair fight.  The tech sector has tens of thousands of talented engineers and businesspeople, all looking to create and leverage the next big idea(s).  Buffett is an amazing investor – maybe the best ever.  But there is an understandable difference in long run returns between those who create the future and those who invest primarily in mature industries. 

Takeaway: We’re not saying every Berkshire shareholder should swap into XLK, but they might want to consider adding US large cap Tech to a portfolio that already includes BRK.  The advance of technology through constant disruptive innovation is an evergreen investment theme that can – and has – reliably outperformed two of the most talented money managers on the planet. That, in a nutshell, is why we have a Disruption section in every DataTrek Report.