20-Year Total Return Comparison (2003–2023)
Over the past two decades, Berkshire Hathaway’s stock performance has roughly matched the S&P 500’s total return. From 2003 through 2023, Berkshire Hathaway (BRK) delivered about a 10.5% compounded annual gain (approximately +644% cumulative), slightly trailing the S&P 500’s 11.1% annualized total return (about +720% cumulative). In other words, an investment in the S&P 500 (with dividends reinvested) marginally outpaced an equal investment in Berkshire over this 20-year span.
2003–2007: BRK surged in the mid-2000s (e.g. +29% in 2007 vs S&P’s +5%) after lagging during the early-2000s tech bubble bust.
2008–2009: Both suffered in the financial crisis (BRK –32% in 2008 vs S&P –37%), with similar ~–50% peak drawdowns, though Berkshire recovered more slowly in 2009 (only +2% vs S&P +26%).
2010–2019: The 2010s bull market saw S&P 500’s strong run in tech; Berkshire kept pace but had some underperformance years (e.g. 2019: BRK +11% vs S&P +31%). Overall, the S&P’s dominance in late-cycle growth stocks narrowed Berkshire’s lead.
2020–2023: Berkshire held up well in volatile times (outperforming in the 2022 down year with +4% vs S&P –18%), but lagged in big rebound years like 2020 and 2023 when tech-led the index higher. By 2023, their 20-year trajectories converged, with virtually no net outperformance by Berkshire.
Bottom line: On a raw total return basis, Berkshire’s legendary long-term outperformance disappeared in the last 20 years, as its compound return was roughly on par with (actually slightly below) that of an S&P 500 index fund. The question is whether Berkshire’s slight underperformance turns into outperformance after adjusting for leverage (i.e. considering the extra boost Berkshire gets from financial leverage like insurance float). To answer that, we examine Berkshire’s use of leverage and the risk-adjusted returns.
Leverage and Insurance Float: Berkshire’s Hidden Booster
A key feature of Berkshire’s business model is the extensive use of low-cost leverage – both explicit debt and implicit leverage via insurance float – to amplify returns. Unlike an unlevered index fund (the S&P 500 has no fund-level leverage), Berkshire has significant liabilities that it invests on behalf of shareholders. Major sources of leverage include:
Insurance Float (Implicit Leverage): Berkshire’s insurance operations generate “float,” which is prepaid premiums held to pay future claims. This float behaves like a zero-cost (or even negative-cost) loan that Berkshire can invest. Over the last 20 years, Berkshire’s float grew from about $46 billion in the early 2000s to $171 billion recently. Buffett notes this float has been costless (even profitable) to Berkshire thanks to disciplined underwriting. In essence, this is other people’s money that Berkshire uses to invest in stocks and businesses – an implicit leverage boosting the asset base beyond shareholder equity.
Debt and Subsidiary Leverage (Explicit): Berkshire carries traditional debt, largely at operating subsidiaries such as BNSF Railroad and Berkshire Hathaway Energy, which issue bonds to finance capital investments. The conglomerate’s consolidated balance sheet shows over $1 trillion in total assets against about $0.65 trillion in equity, implying roughly $0.4 trillion in liabilities funded by debt, float, and other obligations. As of 2024, Berkshire’s equity-to-assets ratio is ~56%, meaning about 44% of its assets are financed by liabilities. This is comparable to the aggregate leverage of S&P 500 companies (the largest S&P firms average ~47% equity and 53% liabilities). Berkshire’s conglomerate structure also allows it to recycle internal cash flows from operating companies into new investments—almost like a continual series of mini-LBOs, using one subsidiary’s profits to expand another. This retention and reinvestment of cash (instead of paying dividends) is a form of operating leverage.
Scale of Leverage: Academic research (including the Cremers & Pareek paper) confirms that high-performing portfolios often deploy sustained positions with high active share and low turnover, matching Berkshire’s long-duration, high-conviction equity strategy. Historical analysis of Berkshire’s balance sheet shows it has been operating at roughly 1.6–1.7x leverage (assets vs equity). In effect, for every $1 of equity, Berkshire deployed an additional ~$0.6–0.7 of float or debt. Critically, the cost of leverage has been low. Buffett’s insurance float carried a negative or near-zero cost, and Berkshire’s top credit rating ensured minimal debt spreads over Treasuries.
Implication: Leverage has historically been a return amplifier for Berkshire. If its underlying assets earn 6–7%, the equity return is pushed into the 10–12% range through financial leverage—without increasing the headline risk. That dynamic raises a key analytical question: how does Berkshire’s unlevered performance compare to the S&P 500’s?
Return on Equity vs. Return on Assets (Unlevered Performance)
To assess leverage’s contribution, we examine:
- ROE: Return on equity reflects returns to shareholders, enhanced by leverage.
- ROA: Return on assets reflects unleveraged capital productivity.
Berkshire’s long-term ROE (~10%) is consistent with its stock returns. However, its ROA is lower, reflecting the effects of insurance float and other liabilities. From 2020–2024, Berkshire’s ROA averaged around 6.1%. Given its ~1.7x leverage, this supports the thesis that equity returns were materially lifted by the capital structure. Put differently: Berkshire’s unlevered performance (ROA) has been solid but not extraordinary.
In comparison, S&P 500 companies also operate with leverage, though typically with more variation. The top firms in the S&P 500 showed average ROE of ~18.6% and equity/assets around 46.8% in 2017. This implies corporate ROAs in the high single digits—not far from Berkshire’s range. The S&P 500’s overall return (~10% annualized) represents the levered return of its components, just as Berkshire’s does.
Key point: On an apples-to-apples unlevered basis, Berkshire’s asset efficiency does not exceed the market. Its advantage came from structural leverage and reinvestment discipline. In recent years, this edge has diminished as Berkshire holds larger unproductive cash balances—currently over $348 billion, according to the FT report, equivalent to one-third of its market cap.
Buffett’s explanation for this growing war chest is consistent: the market rarely offers “extraordinarily attractive” opportunities. His 10 consecutive quarters of net selling, as highlighted in the FT, reflect not pessimism but patience. Berkshire is uniquely positioned to act when others cannot—effectively making it a shadow central bank of liquidity for the next crisis.
Risk-Adjusted Performance (Volatility and Sharpe Ratio)
Risk-adjusted returns further contextualize the role of leverage:
Volatility: Berkshire’s historical volatility (~16–17%) is slightly higher than the S&P 500’s (~15%), due to position concentration and drawdowns (e.g., –54% in 2008–09).
Sharpe Ratio: Over the full 20-year window, Berkshire’s Sharpe Ratio (~0.53) is marginally higher than the S&P 500’s (~0.49), but the difference is statistically trivial. In some periods (e.g. 2008–2017), Berkshire underperformed on a Sharpe basis. If the S&P 500 were levered to match Berkshire’s capital structure, it likely would have exceeded Berkshire’s returns.
Alpha: CAPM alpha is modest or explainable. Studies show Berkshire’s excess returns in recent decades can be explained by factor exposures (value, quality, low beta) plus leverage. As Swedroe and others argue, Berkshire’s outperformance has become factor-replicable, not pure alpha.
Risk-Adjusted Bottom Line
In Buffett’s earlier career (pre-2000), Berkshire’s Sharpe ratios reached 0.8, nearly double the market’s, signaling clear alpha. But in the last 20 years, its risk-adjusted return has converged with the market. Its volatility is not materially lower, and the extra return has been mostly attributable to embedded leverage and full profit retention.
If one were to equalize capital structures, Berkshire’s return edge disappears. And if one un-levers Berkshire to a pure equity-only structure, returns fall materially below the S&P 500. Thus, once leverage is stripped out, Berkshire’s 20-year returns look like an elegant but structurally engineered clone of the S&P 500.
Conclusion: Leverage-Adjusted Performance Assessment
After adjusting for all forms of leverage—float, debt, and internal capital recycling—Berkshire’s outperformance does not persist over the last 20 years. On a raw basis, it slightly underperformed the S&P 500. On a risk- or leverage-adjusted basis, its returns are broadly in line with market benchmarks. Buffett’s portfolio construction, while prudent and durable, does not deliver unreplicable alpha at this stage.
The structural leverage advantage, particularly from float, has been central to Berkshire’s success. But with growing cash reserves, rising market valuations, and reduced reinvestment opportunities, that advantage is now harder to deploy. As noted in the Cremers & Pareek paper, the best-performing strategies require both concentration and patience. Berkshire has both—but patience now dominates.
Buffett’s continued refusal to deploy capital in overvalued markets, even as Berkshire sits on $348 billion in cash, reflects a view that optional liquidity has more value than marginal equity exposure. Investors should not mistake this for inactivity. It is the final act of a master allocator who understands that sometimes the best alpha is waiting.
For further information, please contact us at info@simplifypartners.com
Wishing you the best,
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Federico Polese
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