Got $1,780? Is This The Best Investment In 2024?

Retail investors are conditioned to focus on gains but those who have been around the block and made a fortune focus first on downside risks.

That focus is one of the reasons why so many buy Berkshire Hathaway. After all, when the stock market fell by 20% in 2022, Berkshire treaded water and essentially stayed flat.

Still, it outperformed the market by 20%, a feat few active investors regularly achieve but one which Buffett has done regularly for over half a century.

Key Points

• When the market fell in 2022, Berkshire Hathaway outperformed it by 20%.
• With the market up in 2023, Buffett’s firm lagged by about 9%.
• If you focus as much on risk as reward, Berkshire Hathaway has a history of outperforming the market.

What Presidential Cycle Theory Forecasts In 2024

What made 2023 special was that it was the third year of the Presidential Cycle. History says that of the four years of each cycle, the best is the third year, by a large margin.

In fact, the third year tends to outperform the other three by a factor of approximately 200%. Where the other years tend to average gains of 5-6%, the third year often comes in closer to 15-16%.

If history doesn’t repeat but echoes, expect 2024 to vastly underperform 2023, at least for the broader based market.

What Does Volatility Mean For Berkshire Shareholders?

For Berkshire, the opportunity is to potentially outperform the market yet again, just as it did in 2022.

While it’s true that Berkshire did underperform the S&P 500 marginally in 2023, the relative outperformance in 2022 was sufficient to lead to a two year beat versus the market. In contrast, the 20% decline in 2022 followed by the 2023 gain of 25% simply meant the S&P 500 ended up where it was two years ago.

It’s that long-term track record of beating the market over time that makes Berkshire so compelling. Berkshire may not beat the market during up years but it sure does have a good tendency of outperforming on down years, so it aligns well with the focus of astute investors to focus more on the downside risk than the upside returns.

What Savvy Investors Are Doing

There is good reason why smart investors skip past gains to focus on losses as a first step. It’s nearly impossible for a portfolio to recover if it falls too far. Even for the market to recover 20% losses in 2022, it had to climb by 25% in 2023. Now imagine a portfolio down 50% in a year, it would need to claw back a 100% gain to simply breakeven.

If you’re considering jumping from one rowboat to another to ride the swings and roundabouts of the markets, the years where the odds favor big wins like the third year of the presidential cycle are the ones to look to the S&P 500 or even better VUG, the Vanguard Growth Index fund, but the years that could be more choppy like the final year of the Presidential cycle when uncertainty rises among investors about who will take charge offer an opportunity to hop back into the Berkshire rowboat to protect those market gains.

If that’s the case, buying 5 shares of Berkshire Hathaway for $1,780 might well be the better bet versus the S&P 500 in 2024.