Follow Up on My Berkshire Hathaway Post from Two Years Ago

A couple of bad years can really bring down your average annual rate of return.

Check out this graphic I posted nearly two years ago:

Now here’s that same graphic updated through 2009:

What a difference two years can make.

It is important to note that Berkshire is currently trading at 122,537 per share, which is up 23.53% so far in 2010. That brings the average annual rate of return back up to 22.89% over the last 42.19 years.

The question is: what will the stock return in the future? I’m not an analyst by any means but I would have to say that it would be tough for Berkshire to notch the kind of gains it has in the past. We have already seen this happen over the last several years. For instance, here is a comparison of Berkshire’s average annual returns over the first 5, 10, 15, and 20-year periods (beginning in 1968) and it’s last 5, 10, 15, and 20-year periods:

The bigger they grow, the harder it is for them to continue that growth. Each investment is a smaller and smaller piece of the pie.