Here is how Warren Buffett has been crushing the stock market from 1965 until now

Warren Buffett took the reins of Berkshire Hathaway about 52 years ago. Berkshire's stock has delivered 155 times the total return of the S&P 500, even when including dividends generated by the stocks in the S&P. Here are some details on the effectiveness of Berkshire and how Buffett has managed to achieve such results also what investors to expect in the future.

Since 1965, the S&P 500 has delivered annualized returns averaging 9.7%, including dividends. During the same time period, Berkshire Hathaway has generated an average stock price gain of 20.8% per year, or slightly more than double that of the S&P 500. In other words, if you had invested $10,000 in an S&P 500 index fund at any point during the last 50 years, the investment would have grown to $10,970, on average, after one year. The same investment in Berkshire would have grown to $12,080.

Here's where the incredible effects of compounding come into play. Over the past 52 full calendar years, a $10,000 investment in a low-cost S&P 500 index fund would have grown to about $1.28 million. Pretty impressive, until you consider that a $10,000 investment in Berkshire Hathaway would have grown to more than $197 million over the same time period -- about 155 times as much as the S&P investment.

Perhaps the most amazing part of the story is that Buffett and his team haven't used any ultra-complicated investing strategies to produce these results. In fact, this amazing track record of performance can be attributed to just a few basic concepts that make up Berkshire's growth strategy.

Continuously improving the earnings power of its subsidiaries, year after year. Berkshire has been highly successful at this, as the company's per-share book value has only declined twice in 52 years.

Further increasing earnings through bolt-on acquisitions.

Benefiting from the growth of the company's investments.

Buying back shares when they trade at a meaningful discount to book value.

Occasionally making large acquisitions.

Berkshire Hathaway is one of my largest stock holdings, and probably that fact will not change anytime soon.

Basically, Buffett's point is that Berkshire is simply getting too large to sustain its amazing record of performance for a long period of time. In fact, if Berkshire's stock price grew at the same 20.8% rate for another 50 years, it would result in a market cap of approximately $7,400 trillion . Simply put, it's not going to happen. That's about 30 times the combined wealth of all the people in the entire world.

However, by using the same winning strategy he's been using for more than half a century, Buffett believes that Berkshire can still beat the market by a significant margin over the long run, and as I've written before, I agree. It just won't be anywhere near as impressive of a run as Berkshire has had so far.

Source: Business Insider

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