Bottom Line Up Front: Warren Buffett has long predicted that they’re getting too big to see the sizeable returns they saw for the first many years of Berkshire Hathaway's (BRK.A) (BRK.B) lifetime, but it never came to fruition. But with over $300 billion in cash, and few options left to buy “sensible prices of businesses that have good underlying economics and are run by honest and able people” at scale, is his prediction finally coming true?
The Details: Warren Buffett, who still serves as Berkshire’s chairman, is often his own biggest critic. He often vastly outperformed the markets, largely to his own surprise. This idea is clearly exemplified at the start of his 1994 annual shareholder letter. “Our gain in net worth during 1994 was $1.45 billion or 13.9%. Over the last 30 years our per-share book value has grown from $19 to $10,083, or at a rate of 23% compounded annually,” Buffett said. He continued, “Charlie Munger, Berkshire's Vice Chairman and my partner, and I make few predictions. One we will confidently offer, however, is that the future performance of Berkshire won't come close to matching the performance of the past.”
Buffett returned 45% the very next year, 36% the year after that, 34% in 1997, 48% in 1998, and has continued to outperform nearly every other asset into 2026. Buffett has made this prediction, that they’re too big to keep growing as fast as they do, several times over the past half-century. Yet the gains have rarely slowed for a prolonged period. Specifically, Buffett has said, “A fat wallet, however, is the enemy of superior investment results.”
The idea here is simple. If you only had $10 and you were looking to get a 100% return in a year, the task isn’t that daunting. If you had $1,000 and wanted to double it, it would be a bit harder, but still pretty doable. But if you have $100 billion to allocate in a reasonable manner, your options are limited.
As of this writing, there are only 114 companies in the S&P 500 Index ($SPX) worth more than $100 billion. Buying up a $10 million business would have a limited impact on investor returns. Even if the company grew 1,000% in a year to $100 million, a $90 million gain would be a fraction of 1%. This effectively means Berkshire has to invest in companies worth billions, and, as a policy, it doesn’t do hostile takeovers. So if a company says they don’t want them buying more than 10% of their shares, they won’t buy more than 10%.
Berkshire today holds roughly $350 billion in cash alone, with another $200 billion in stock holdings. It’s not entirely clear why they hold so much cash, whether they haven’t found a big enough target, or if they’re expecting a broader market pullback, but it seems they’re definitely starting to run into a growth wall. However, Buffett predicted such a wall many times as long as 40 years ago. So they might find a way to surprise investors once again.
How Has Buffett Done It?
Importantly, Buffett doesn’t say that Berkshire Hathaway will do poorly. Rather, the company says investors shouldn’t necessarily expect the outsized returns they’ve seen in the past. Buffett believes the days of 30% and 40% growth are gone, and investors should instead expect performance similar to, or slightly exceeding, that of the S&P 500. That said, Buffett doesn’t plan to follow the S&P 500 formula. As he says, “our formula - the purchase at sensible prices of businesses that have good underlying economics and are run by honest and able people - is certain to produce reasonable success. We expect, therefore, to keep on doing well.”
As Buffett hands over the reins to new CEO Greg Abel, many are concerned that he can't match Buffett's results. But, according to Buffett himself, that might not be possible due to Berkshire’s size, even if he maintains the same playbook.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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