90% Outperformed Warren Buffett in His Last Year. So What?
• Berkshire Hathaway (BRK) underperformed in 2025, returning roughly 11% versus the S&P’s almost 17%, ranking in the 90th percentile for similar mutual funds.
• BRK’s defensive positioning—holding a record 56% in cash—significantly weighed on performance as investors chased gold and foreign stock, driving up their prices.
• Buffett’s caution reflects fear of a US stock market bubble, contrasting with market participants’ recent risk-seeking behavior.
• Despite leadership transition, I believe BRK’s defensive stance will prove prescient as the market succumbs to Stein’s Law that if something cannot go on forever, it will end.
Most of us expect Warren Buffett’s Berkshire Hathaway to beat the market every year, but that didn’t happen last year. You’d think that Buffett would like to retire—at 94—with another winning year in the books as he exits, but that win will have to wait. Why didn’t he win in 2025 and why should BRK shareholders trust the new guys going forward?
BRK has indeed been a winner as shown in the following.
Note that success wasn’t earned with home runs. The Buffett discipline delivered a slight edge each year, snowballing over time to a 400% excess return above the S&P. So, went wrong in 2025?
The 2025 stumble
Last year BRK’s 11% return trailed the S&P’s 17% return by about 6%.
As shown in the following table, Morningstar Direct ranks BRK’s 11% return in the 90th percentile—bad.
Large-Blend Category
- Average return: ~16-18% (closely tracked S&P 500’s 17%)
- Percentile distribution:
- 1st percentile: >25%
- 10th percentile: ~22-24%
- 25th percentile: ~19-21%
- 50th percentile: ~16-18%
- 75th percentile: ~13-15%
- 90th percentile: ~10-12%
- 100th percentile: <8%
Did Buffett leave on a bad note? Why was his performance so bad?
A bifurcated stock market
Both greed and fear were in play in 2025. There’s fear that the US stock market bubble will burst, leading Warren Buffett to raise substantial cash, while greed has driven investors into gold and foreign stocks, potentially creating more bubbles in the process.
Coming into this decade, investors were confident in the US stock market, so it led all asset classes. But that has changed this year, as investors position for the challenges and opportunities that lie ahead. US stocks did not win the performance race last year.
Buffett lost last year’s performance race because he is fearful while others are greedy, as shown in the following:
Investor greed has led them to seek higher returns outside the US and to profit from gold’s meteoric 65% rise in the face of inflation concerns. While others were shifting out of US stocks and into gold and foreign stocks, Buffett was moving to an unprecedented cash position, marking the largest in the company’s history, exceeding previous peaks.
It was the drag of 56% in cash that placed BRK’s 2025 return in the 90th percentile.
What’s next
Warren Buffett is one the folk heroes of investing, lauded for his practical wisdom and history of success, plus a lot of great quotations. He has passed control to new management that might undo the current defensive position, but my belief is that the future will prove that the Wizard of Omaha has made a fantastic call. What do you think?
SEE ALSO:
• Gold Glitters as a Hedge Against a Stock Market Crash
Ron Surz is president of PPCA Inc and its DBA Target Date Solutions (TDS), co-host of the Baby Boomer Investing Show (BBIS), creator of Soteria SaaS, and author of the books “Fixing Target Date Funds” and "Baby Boomer Investing in the Perilous Decade of the 2020s." TDS licenses target-date fund usage of Ron’s patented Safe Landing Glide Path® (SLGP) that actually protects beneficiaries as they approach retirement. Individual investors can follow the SLGP at Age Sage, an educational interactive website. The BBIS educates Baby Boomers on the risks and rewards in contemporary investing.
Ron can be reached at Ron@TargetDateSolutions.com.
