In This Article:
The S&P 500 Index (SNPINDEX: ^GSPC) enjoyed a fantastic year in 2024, gaining roughly 24% (as of Dec. 30). Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) performed similarly, depending on which share class you look at.
Over the last two years, the broader market, buoyed by high-flying tech stocks, is up about 53%. Berkshire Hathaway has trailed the market, but still performed very well. I believe this trend will reverse in 2025, and Berkshire Hathaway will outperform the S&P 500. Here's why.
Berkshire Hathaway is better positioned
Berkshire's -- and the broader market's -- gains have been propelled by similar dynamics, at least if you compare Berkshire's roughly $300 billion equities portfolio to the makeup of the S&P 500. The Magnificent Seven stocks and Broadcom, which some now call the Fateful Eight, consume more than one-third of the broader benchmark index. Magnificent Seven member and consumer tech behemoth Apple made up roughly 30% to 40% of Berkshire's equities portfolio until about mid-way through 2024.
Berkshire began selling Apple and has now trimmed its stake by 67%. Now, Apple only makes up about a quarter of Berkshire's portfolio, and I could see Berkshire continuing to pare this position, as Buffett and his team are not known to take half positions. Regardless, this puts Berkshire's portfolio in a more balanced position. Bank of America and American Express account for another quarter of Berkshire's equities portfolio. Stocks in other sectors like oil, consumer goods, and financials other than banks make up another quarter.
Of course, the Fateful Eight stocks could keep rising. But in my opinion, these stocks will be more vulnerable to pullbacks on earnings hiccups or issues with the broader market and inflation, due to their elevated valuations. Buffett and Berkshire haven't purchased many stocks over the last two years. However, they hold a nice slate of value names with strong dividends, including Kraft Heinz, Sirius XM, and Citigroup.
Berkshire also has a massive hoard of cash exceeding $300 billion, which provides a nice cushion, and the company has only repurchased a few billion dollars' worth of its own stock this year. The Oracle of Omaha has managed to keep pace with the S&P 500's impressive year without making many big moves.
Plus, Berkshire is well-positioned to hedge inflation, considering its many energy assets and stocks. Berkshire Energy is one of the largest oil producers in oil-rich Texas. Berkshire also now owns more than 6% of outstanding shares in Chevron and more than 28% of Occidental Petroleum, a company some speculate Berkshire may eventually outright acquire. The outlook for oil prices is fairly bearish right now. However, further geopolitical tensions, or fluctuations in interest rates or the U.S. dollar, could affect oil prices. Berkshire offers safety and potential rewards for shareholders if oil prices move higher.