Why Berkshire Hathaway is crushing the S&P 500

The chart above illustrates Berkshire’s dominance over multiple timeframes. The company is outpacing both the S&P 500 and NASDAQ 100 year-to-date, and its 1-year and 5-year returns have been particularly impressive.

While tech stocks (represented by the NASDAQ 100) have outperformed over a 10-year term, Berkshire’s steady, diversified holdings continue to generate strong returns without the extreme volatility seen in tech-heavy portfolios.

So let’s dig deeper into what’s driving its success, and the risks investors should watch for.

The power of old-school profits: insurance, dividends and T-bills

While many high-flying stocks depend on sentiment, Berkshire is thriving on cold, hard cash. In 2024, its operating income soared 27% to $47.4 billion. The secret? Insurance and dividends.

• GEICO business has turned around. Berkshire fully owns GEICO, and after struggling in 2022, the insurer roared back with a record $7.8 billion underwriting profit in 2024, more than doubling its 2023 earnings.
• Dividend giants fueling cash flow. Berkshire’s stakes in Coca-Cola and Bank of America paid off handsomely, generating $776 million and $796 million in annual dividends, respectively.
• T-Bills are paying off. With interest rates elevated, Berkshire’s massive $286.5 billion allocation to U.S. Treasury bills has become a major income source, earning around 5% annually – a substantial return on a traditionally "safe" asset. This has helped to offset the earnings drop elsewhere in Buffett’s portfolio last year.

Lesson: Boring, cash-generating businesses may not make headlines, but they deliver when it counts.

Cash is king (but investing it wisely is even better)

While many companies are weighed down by debt, Berkshire is sitting on a war chest – over $300 billion in cash and equivalents. That means:

• It can weather economic downturns without breaking a sweat.
• It’s ready to pounce on opportunities. When asset prices drop, Buffett has the dry powder to buy great businesses at bargain prices.

However, Buffett has made it clear that he doesn’t like sitting on cash just for the sake of it. He has long maintained that he would rather invest in strong businesses than hoard cash, but finding attractively valued opportunities in today’s high-priced market has been challenging. This explains why Berkshire’s cash pile has grown—it’s not a strategy, it’s a byproduct of Buffett’s disciplined approach.

Lesson: Holding cash is important for flexibility, but the ultimate goal should be deploying it into quality investments when the time is right. Investors should ask themselves: Am I patient enough to wait for the right opportunities rather than rushing into overpriced assets?

Going global: a strategic edge

While many investors have a home-bias or prefer the better-known U.S. stocks, Berkshire has been quietly expanding internationally.

• Buffett has been increasing his stakes in five major Japanese trading houses (Itochu, Sumitomo, Marubeni, Mitsubishi, and Mitsui).
• These companies trade at low valuations, offer strong dividends, and provide exposure to global commodity markets.

Lesson: The U.S. market isn’t the only game in town. Investors should explore international opportunities where valuations are more attractive.

Defensive, but not just sitting still

Berkshire isn’t just about safety – it’s also making bold moves.

• Tech-light portfolio. While the S&P 500 is heavily weighted toward high-growth, high-multiple tech names, Berkshire’s portfolio skews towards industrials, energy, and insurance – sectors that have historically held up well in periods of economic uncertainty and inflation.
• Selective stock picking. Berkshire is still investing in high-quality tech names like Apple but remains cautious about broader market exuberance.

Lesson: Investing defensively doesn’t mean avoiding opportunity – it means being picky about quality.

How Berkshire Hathaway is the one-stock shortcut to a diversified portfolio

Berkshire Hathaway is often called a "mini-index fund" because it provides exposure to a wide range of industries. Saxo’s Warren Buffett shortlist provides a quick look at the largest companies in the Berkshire Hathaway portfolio, but here is what one share of Berkshire effectively gives you exposure to:

• Financials – Bank of America, American Express, Citigroup
• Consumer staples – Coca-Cola, Kraft Heinz
• Consumer discretionary – Domino’s Pizza, Pool Corp, Constellation Brands
• Energy & utilities – Occidental Petroleum, Chevron Energy
• Insurance – GEICO, Chubb
• Industrials & railroads – BNSF Railway, Precision Castparts
• Technology (selective exposure) – Apple (Berkshire’s single largest holding, but the company avoids speculative tech investments)

This could make Berkshire an excellent diversifier for investors who are too heavily weighted in U.S. tech stocks.

• If your portfolio is overloaded with tech, Berkshire offers exposure to more stable sectors like insurance, consumer goods, and industrials.
• If your portfolio is light on U.S. tech, you still get exposure to Apple, but in a way that’s balanced with traditional value plays.

Lesson: Instead of chasing tech momentum, investors can use Berkshire as a way to diversify into cash-generating businesses that hold up better in downturns.

What are the risks of investing in Berkshire?

While Berkshire has many strengths, it’s not immune to risks. Investors should keep these in mind:

1. Buffett and Munger are not forever: Warren Buffett is 94, and his longtime partner Charlie Munger passed away in late 2023. While Berkshire has a succession plan in place (Greg Abel is expected to take over), no one truly knows how the company will operate post-Buffett. The "Buffett premium" in Berkshire’s stock could erode over time if investors lose confidence in its future leadership.
2. Limited tech exposure could be a drag: Berkshire’s relative lack of high-growth tech stocks has helped it avoid volatility, but it also means the company could underperform in a sustained tech boom.If AI and technology stocks continue to dominate the market for years, Berkshire’s value-oriented approach could lag behind more tech-heavy indexes.
3. Interest rate & market cycle sensitivity: Many of Berkshire’s businesses, including insurance and financials, benefit from high interest rates. If rates fall sharply, profit margins could shrink. Similarly, if consumer demand weakens, holdings like Coca-Cola and retail-adjacent businesses could face headwinds. The same defensive qualities that make Berkshire attractive in uncertain markets might hold it back when markets turn risk-on.
4. Berkshire is huge – and that can limit growth: With a market cap of over $800 billion, Berkshire can’t easily find investments big enough to meaningfully move the needle. Buffett has often said that Berkshire’s size makes it harder to find bargains that significantly impact its growth.