Worried About a Market Crash? One Stock That Kills the S&P 500 in Down Years

“We do better when the wind is in our face,” Warren Buffett noted in this year’s letter to Berkshire Hathaway (BRK.B) shareholders, and how.

In years in which the S&P 500 declined, Berkshire has always thumped the index on a relative basis. Using Buffett’s preferred yardstick of Berkshire book value, rather than its share price, vs. the S&P 500 performance, the Old Guy crushed the index by 32 percentage points in the God-Awful market of 1966, when the S&P was off 11.7% and Berkshire book value soared by 20.3%, according to Buffett’s letter. (In those days, Berkshire was more of a stock fund than an operating holding company, so the performance of its stocks dictated its book value; today, operating companies dominate Berkshire results and thus its book value is less likely to sharply rise or fall in any given year.)

In 1969, by 24.6 percentage points. In 1974, by 31.9 percentage points. In 1977, by 39.3 percentage points. And so on, to the latest down year for the S&P 500, 2008, when the index fell 37% and Berkshire’s book value dipped a relatively small 9.6%, giving Buffett a 27.4 percentage point advantage for the year.

In up years, Buffett often trails. “In years when the market is particularly strong, expect us to fall short,” Buffett concedes. He largely eschews tech stocks and other momentum plays, so a super-hot market will race past Berkshire.

Today, with the Dow Jones Industrial Average hitting an all-time high and other market indices also near their tops, it would be prudent to start thinking about the next major market correction. Where to put that money you have in an S&P 500 fund or scattered across the market? Well, Berkshire shares are a proven out-performer in bad years, as suggested by a stock chart.

BRK.B Chart

BRK.B data by YCharts

Berkshire stock, in the latest bad year, 2008, actually fell quite hard, even as its businesses and stock portfolio were doing well and Buffett was lending money (via preferred stock deals) and his good name to the likes of General Electric (GE), Goldman Sachs (GS) and Bank of America (BAC).

All three came roaring back.

GE Chart

GE data by YCharts

Berkshire is up more than 10% so far in 2013.

BRK.B Chart

BRK.B data by YCharts

Maybe some worrywarts are loading up.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com.



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