Experienced investors know the advantages of buying and holding S&P 500 index funds like the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). Not only are they super simple, but statistically speaking, you’re likely to get better performance from them than you are by picking individual stocks or by owning an actively managed fund.
Nevertheless, given its long-term (and often market-beating) track record, even the most disciplined of investors might have the itch to step into a stake in Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB). But is it actually the better buy?
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What Berkshire Hathaway is
Berkshire Hathaway is a conglomerate consisting of several dozen reliable cash-producing businesses as well as a portfolio of hand-picked stocks. Brought to prominence by Warren Buffett, the company’s flexible structure has enabled its shares to consistently outperform the S&P 500 since Buffett first took the helm in 1965.
It hasn’t beaten the market every year since then, to be clear. Some years it did. Other years it didn’t. It typically achieved the feat in five-year time frames.
It’s happening less and less, however, now that the conglomerate has reached its enormous market value of $1.1 trillion. As Buffett warned in 2023’s letter to Berkshire shareholders posted in early 2024, “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 … all in all, we have no possibility of eye-popping performance.”
And that should concern interested investors. The question is, is it true?
The argument
There may be a good reason for you to own either, or neither, or both. For most investors looking for a long-term growth holding right now, however, Berkshire is arguably the better bet, for a couple of reasons.
One of these reasons is the S&P 500’s overall valuation. Although it’s mostly due to a handful of very large technology stocks, the index’s forward-looking price-to-earnings ratio of more than 20 is well above norms. The underlying expected earnings growth largely depends on the continued growth of an artificial intelligence industry that may run into a headwind sooner rather than later, too.
