Berkshire Hathaway's longest calendar-year stretch, not just for a single decade but for the 20 years from 1995-2014, is shown below. (The height of Berkshire's line has no interpretation, so never mind about that bit.)
Hmmm. Not impressive. The longest successful stretch was only three years--and what the chart doesn't show, is that Buffett also had a 3-year losing streak. Smells like a monkey to me.
To put the matter another way, several dozen mutual fund managers, and even more coin-flipping monkeys, outdid the Oracle of Omaha on this score. Which means that the score fails, because Buffett is clearly better. Not only does he have 40 years' worth of previous performance to back up that claim, but Berkshire Hathaway would have turned a $1 million initial investment into just more than $11 million during that 20-year stretch from 1995 through 2014. During that same period, that amount in the S&P 500 would have grown to only $6.5 million.
Thus, what the consecutive-years measure missed with Buffett was more important than what it captured.
I suspect that is generally the case.
There is information imparted by the overall decline in long fund winning streaks; as Jaffe writes (and academic studies concur), U.S. stock-fund managers enjoyed better success against the indexes back in the day. But the length of a given fund's thread indicates little. Screening funds based on their ability to string together outperforming calendar years is, therefore, not useful.
This article has been written by John Rekenthaler, the Vice President of Research for Morningstar. It initially appeared on Morningstar.com.
