Key points:
- In 2011, all US funds with 5-year track records underperformed the benchmark
- In 2011, BNPPL1 Opportunities USA USD returned -18.36%, and Fidelity America USD returned -2.81%
- On a 5-year annualised basis, BNPPL1 Opportunities USA USD returned -0.86% versus the benchmark return of -3.56%
- The performance of BNPPL1 Opportunities USA USD is similar to Berkshire Hathaway as 1) both underperformed the S&P 500 in 2011, and 2) on a 5-year annualised basis, both outperformed the S&P 500

For every human endeavor, there usually is a special individual, whose accomplishments defy gravity, win the respect of peers, and capture the imagination of millions. Tennis’ Federer. Boxing’s Ali. Pro wrestling’s Calaway.  And when one speaks of investing, the name is Buffett.

Warren Buffett, greatest investor in the history of financial markets, invests through Berkshire Hathaway. His record, unrivalled, and the 2008 Chairman’s letter to Shareholders of Berkshire Hathaway states,

“Over the last 44 years (that is, since present management took over) book value has grown from $19 to $70,530, a rate of 20.3% compounded annually.” (Numbers quoted reference Berkshire’s A-shares. Source: Berkshire Hathaway Annual Report 2008, Chairman’s Letter.)

20% returns compounded over 44 years is an astounding return, and is a testament to the investing genius of Buffett.

So what in the name of good sense does Berkshire have in common with the worst-performing US fund in 2011?

First, let’s take a look at the US funds available on the platform.

US Funds 2011 Performance
Table 1 displays the performances of the US equity funds with a 5-year track record.

First impressions look grim; not a single fund beat the benchmark. In fact, with the exception of one fund, ING (L) Inv US High Div P USD, all funds put in a negative performance, most notably BNPPL1 Opportunities USA USD, our recommended fund, and also bottom-performer of 2011.

But that’s just one year of data, and with market cycles lasting around 5 years, it’s important to zoom out, and look at performances over a 5-year period, as this would include up trends, down trends, and sideways market movements.

US Funds 5-year calendar year and annualised performance

Over 5-years, one can see what contributes to the Recommended Fund status of BNPPL1 Opportunities USA USD: it’s one of the rare funds to have beaten the S&P 500 in 4 of the past 5 years. And this long-term performance explains how, over 5-years, the fund beats the benchmark, as shown in table 3.

In fact, it’s the only fund with a 5-year track record on the platform that has managed to beat the index.

So what does BNPPL1 Opportunities USA USD have in common with Buffett and, by extension, Berkshire Hathaway?

Two Things This US Fund Has In Common With Warren Buffett
Over the same 5-year period, from end-2006 to end-2011, I measured Buffett’s performance with Berkshire Hathaway’s B-class shares, which are more liquid than the A-class shares.

Table 4 displays the historical performance of BNPPL1 Opportunities USA USD, Berkshire Hathaway and the S&P 500.

Immediately, one can see the first thing they have in common: Berkshire Hathaway and BNPPL1 Opportunities USA USD underperformed the benchmark in 2011. The second thing they have in common is shown in table 5.

The second thing they have in common: over longer time-frames, both Berkshire Hathaway and BNPPL1 Opportunities USA USD outperform the benchmark.
The point of this comparison is to highlight the fact that investment losses (sometimes to the extent of double digit losses) are an uncomfortable fact of investing life, and even the best don’t beat the benchmark every single year.

But investors (from the legendary to the obscure) with an effective and profitable strategy will eventually ride out the losses and achieve long-term outperformance.

Nick Tay tweets randomly on Twitter, connects with people on Facebook or Google+, and loves all things investing, social media and Youtube. You can also leave feedback with a post on the forum. I promise to read all feedback, and will make every effort to respond where possible. If you know of anyone who can benefit from this article, do a favour and share it with them– but only if you think it’s worth sharing!