Beating Buffett Is Hard Enough; Beating Him Tax-Efficiently Is Harder

It goes without saying that Warren Buffett has been extremely difficult to beat as an investor.  Few companies can claim to have generated higher returns for their shareholders than Buffett’s Berkshire Hathaway, and fewer still investors can claim that their portfolios have generated greater returns than Buffett’s.  Therefore, I thought it would make for an interesting challenge to try to identify ten or so companies that have generated superior returns to Berkshire over the last quarter-century or so.

It goes without saying that the companies I included in my study had to have data going back to mid-1990, the earliest data for which I have Berkshire A-share returns.  In addition, I wanted to exclude from my study any technology and biotech stocks the returns of which I thought might be outliers given the tech bubble of the late 1990s.  So, given those parameters, I was able to identify several companies that outperformed Berkshire:

(data from Morningstar)

In full disclosure, I wasn’t able to perform a full filtered search for all stocks that beat Berkshire, so it’s possible there were many more that did so.  Now, that being said, what’s interesting about the list of companies above is how diverse they are as far as sectors and industries, and also how somewhat unique they are within those industries.

For example, Home Depot and Lowe’s performed very similarly, so one might reasonably assume that their performance was merely due to trends in housing, particularly in the earlier part of this decade.  However, I found their tandem performance exceptional; in other fields, there seemed to be one or two clear winners with many lagging far behind both Berkshire and their peers.  For example, while Walgreens delivered >15% annualized total returns to its shareholders, rival CVS delivered only ~10% annualized returns.  Other examples would be the out-sized performance of consumable companies such as Altria and Colgate versus companies like Pepsi and Kimberly Clark, which lagged considerably.

The 1990s were a great time, for asset managers, so I thought that might have been the primary boost for T. Rowe  Price.  Not so; fellow asset managers Franklin Resources and Legg Mason delivered returns that were about 80% and 45% of Berkshire’s returns, respectively.  There is a similar result in retail.  While several retailers like JC Penney are barely surviving, and others such as Nordstrom are the victims of e-commerce trends, TJX Companies (the parent company of Marshalls and TJ Maxx) has thrived in a challenging brick-and-mortar retail environment.

Now that we’ve established that these companies delivered superior returns on their own merit and were not necessarily lucky by being the beneficiaries of macro trends, I thought it would be instructive to make the comparison with Berkshire even more challenging.  Consider that last December, Philosophical Economics wrote about the impact of taxes on investment returns, and compared the pre- and post-tax shareholder returns of Altria, a huge dividend payer, and Berkshire Hathaway, which has never paid a dividend.  Jesse Livermore, the blog’s author, describes the tax effect on the return differential this way:

Considering the huge tax impact on dividends over the very long run, I wanted to see how these companies would have performed ex-dividend; that is, I wanted to compare their returns with Berkshire’s without reinvested dividends* just to see how the performance would have been altered.  Interestingly, only ten of the above companies (emboldened) managed excess returns without the benefit of dividend reinvestment:

It is pretty stunning to consider the difference in returns.  It would require another post altogether to dig into the reasons why these companies blew away the competition, and Warren Buffett, even excluding dividends, but that will be a future project.

It is interesting to note that of the examined Berkshire holdings, only Wells Fargo and US Bank generated higher returns (with dividends) than Berkshire itself, while long-time holdings Coca Cola, P&G, and American Express all lagged.  Furthermore, at some point in the period examined, Berkshire owned Home Depot, Lowe’s, and General Dynamics, but sold out of them years ago.  That just goes to show you that even if you are history’s most renowned investor, you are still fallible.

Now here are some other articles which may be of interest to you:


The cost of capital and future return expectations.  – Daniel Sotiroff

What drives momentum performance?  – EconomPic (Jake)

Being comfortable with being uncomfortable. – Isaac Presley, Cordant Wealth


What if Germany had won the Great War? – Martin Kettle, via The Guardian


The weird history of clear soda. – Stephanie Pappas, via

*Yes, I am aware that the returns would be different if these companies had retained earnings and not paid them out, and that investors could have taken their after-tax dividend proceeds and reinvested them in other ventures, etc.

Disclosure:  Past performance is no guarantee of future results.  Both the author and clients of Fortune Financial hold positions in some of the securities mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Fortune Financial Advisors, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Fortune Financial Advisors, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.