Warren Buffett's Berkshire Compounded at 19.9% a Year Over 60 Years as CEO, Nearly Double the S&P 500's Return. Can Investors Still Expect That Playbook Today?

Warren Buffett is arguably the greatest investor of this generation, and he leaves behind a celebrated legacy as he steps down as chairman of Berkshire Hathaway (BRKA -0.05%)(BRKB -0.16%), the holding company he built into a powerhouse, with nearly 200 operating businesses and a $350 billion equity portfolio.

Along the way, Berkshire Hathaway stock gained more than 5,500,000%, or a 19.9% annual compounded gain. That's nearly double the S&P 500's 10.4% annual compounded gain. Is there a chance for a repeat performance?

Berkshire Hathaway has been handed over to the capable hands of new CEO Greg Abel, who has been groomed for the role since he joined the company in 2018. So far, he hasn't made any significant changes to the model, although he slashed many of the smallest equity positions, which he had pledged to do before taking over. The other major change he has made so far is the acquisition of homebuilder Taylor Morrison, which was completed in July for $6.8 billion.

Image source: The Motley Fool.

Another recent development is a massive stake in Alphabet, though it was initiated in Buffett's time and isn't a deviation from the standard Berkshire Hathaway playbook.

Investors can expect similar deals, including major acquisitions when the financials look attractive and large stock purchases that fit the company's investment criteria. The stocks might differ, but they're likely to have a dominant market position, strong management, and strong cash flow.

The stock isn't likely to provide similar gains, though. Berkshire Hathaway was a much smaller operation when Buffett took it over in 1965, and its growth over the past 60 years isn't repeatable. The same amount of growth in dollar terms translates into much less growth in percentage terms as the base gets larger. Investors reward percentage growth, which means Berkshire Hathaway stock isn't a growth stock anymore.

For example, in 1990, Berkshire Hathaway had $2.66 billion in revenue, and that increased to $34 billion in 2000. By 2020, it had ballooned to $246 billion, nearly 100-fold in 30 years. Its stock gained 900% over that time. It isn't possible to grow 100-fold again in the next 30 years, and its stock will reflect its growth.

The company is already showing signs of slowing down, and it has underperformed the market over the past three-, five-, and 10-year periods.

Buffett acknowledged this in the 2023 shareholder letter

There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.

It can still provide value for investors, though. Abel and his team are likely to find great companies to buy and spot stocks trading at steep discounts, ensuring steady growth over many years.