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I thought it might be useful to put the current downward moves in the market in some perspective, so I’ve looked up what happened to Berkshire Hathaway when its shares fell significantly and then rose again: How far did it fall and how long did it take to recover? I’ve also obtained data on the FTSE 100 share index and the Dow Jones as well as information on recessions and recoveries.
Berkshire Hathaway
I’m taking BH’s share movements as a proxy for the experience of a value investors’ portfolio in a bear market and in the recovery phase. It’s clear that despite Warren Buffett’s talent, Berkshire Hathaway is far from immune from large downward lurches – its shares can fall by 35% or more.
More hearteningly, we find that it is not many months before the shares have reclaimed all lost ground.
In the crash of 1987 BH shares lost 31% between September and November. If you had bought at $2,900 in November, when there was much fear and gloom on Wall Street, and held for 10 months to September 1988 the return would be 66%. If you had sold after a large fall and so missed out on the climb-back, you’ll be kicking yourself in September 1988.
Berkshire Hathaway shares August 1987-October 1988
In December 1989 BH shares could be bought for $8,675 each. By September 1990 they had fallen 32% to $5,875. It took only 7 months for them to recover all the lost ground, rising 49% from their low point.
Berkshire Hathaway shares 1989-1991
In March 1999 BH shares were trading at $80,000. They then fell over the next year by 48% to $41,572. Holding onto to those shares through the recovery over the next 9 months would have resulted in a 71% return ($71,000) from the low point.
Berkshire Hathaway shares 1999-2000
In October 2008 BH was at $147,000. It fell 50% over the next 5 months. Then it rose by 69% to $125,000 a year later.
Berkshire Hathaway shares 2007-11
So far in this crisis BH shares have fallen only 21% from $346,000 to $272,000, which is fairly modest compared with past downturns.
Berkshire Hathaway shares 2019-2020
Lessons
- Even the best portfolios suffer large drops
- When there is a big fall, if the portfolio is made up of sound companies, it is best to hold on for the upturn – do not be panicked
- There has been a remarkable overall rise over the last 33 years in BH shares – it would not have been wise to trade in and out to try to catch the assumed next up phase or avoid the supposed next down phase. Buy and hold for the long term is often the best policy.
The Footsie and the Dow
In October 1973 The Dow was trading at 978. Eleven months later it was 40% lower at 584. It took a mere nine
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