Berkshire now appears to be more index fund-like, at least in terms of overall return. For the last four of the last six years, the stock has underperformed the S&P 500.
Is Buffett losing his swagger? For the sake of clarity, it should be noted that the S&P index returns are pretax, while Berkshire's are after taxes, so Buffett still has the edge in the long term. Still, would it make sense to invest in Berkshire Hathaway now rather than just stay in an index fund?
While most of Berkshire's investors and Buffett's many admirers want to see the chairman live forever, most of his best trades, deals and holdings remain in the past. This despite his statement in the Berkshire annual report that "book value and intrinsic value will outperform the S&P in years in which the market is down or moderately up."
Yet you cannot expect the company, especially under Buffett's still-unnamed successor, to continue its winning ways.
For the interim, most of Buffett's advice is solid, but with some caveats. I would still buy the lowest-cost index fund but would make sure I had a basket of non-U.S. stocks in developed and emerging markets in a total market international fund like the iShares Core MSCI Total International Stock ETF (IXUS). The fund, which charges 0.16 percent annually in management expenses, tracks an index of non-U.S. stocks like Nestle S.A., Roche Holdings AG and HSBC Holdings PLC.
The same thinking on broad global diversification would apply to my bond holdings for my short-term cash needs––money I need in a year or less––in a short-term Treasury or corporate bond or money-market fund.
I would also want part of my income portfolio in European and emerging-markets bonds, municipal bonds and Treasury Inflation-Protected Securities, high-yield corporate debt and floating-rate notes for inflation protection.
All of this begs for more index fund investing across the board. So you should not mistake Buffett's one gem of advice as a one-stop solution. There is a simple formula behind it, but you need to apply it broadly.
The opinions expressed here are those of the author, a columnist for Reuters.