One of the most reliable rules of American investing over the last 50 years may have finally been broken. 

Warren Buffett's Berkshire Hathaway (BRK.A 1.66%) (BRK.B 1.35%) is not the sure bet it once was. Berkshire, which owns everything from GEICO to Fruit of the Loom to Dairy Queen, and is a major investor in dozens of other stocks, has returned an annual average return of 20.5% since it began trading in 1965.

Warren Buffett at a conference

Image source: Motley Fool.

However, over the last decade, Buffett's track record has been decidedly average. In fact, over the last ten years Berkshire has actually slightly underperformed the S&P 500 on a total return basis, which includes reinvested dividends.

BRK.B Total Return Price Chart

BRK.B Total Return Price data by YCharts

What happened to the Oracle of Omaha? Has Buffett lost his magic, or did circumstances just change unfavorably over the last ten years? The answer may be somewhere in between. Let's take a look at five reasons why Buffett lost to the market over the last decade.

1. Growth stocks trounced value stocks in the 2010s

Buffett is a classic value investor. He hunts for stocks and companies that are trading for less than their intrinsic value, giving him an opportunity to make a return. In stocks, he favors reliably profitable companies that may grow slowly but have sustainable competitive advantages, or "economic moats," that ensure their success over the long term.

However, in the battle of growth vs. value, growth stocks were the clear winner over the past decade. Tech names like the FANG/FAAMNG group captivated investors and drove the bull market over the last decade. Buffett has generally refused to invest in tech stocks, though he broke that rule for Apple, and missed out on the FANG rally. As the chart below shows, growth stocks significantly outperformed their value peers over the last decade.

IVE Chart

IVE data by YCharts

2. Berkshire has become the market

It's difficult to outperform the market when your company essentially mirrors the S&P 500. No company is an exact representation of the stock market, of course, but Berkshire Hathaway comes closer than any other. The conglomerate's subsidiaries include operations in manufacturing, real estate, utilities, insurance/banking, railroads, chemicals, restaurants, car dealerships, packaged food, apparel and footwear, media, and several other industries.

The company also holds significant interest in fields like healthcare, retail, air travel, pharmaceuticals, and others, including many of the categories above.

When your company is exposed to that many different sectors of the economy, its performance is much more likely to reflect that of the broader stock market, no matter how much value you're able to add or how good you are at finding bargains. That may explain why the company's stock has tracked so closely with the S&P 500 over the last ten years.

3. Elephants are getting harder to find

Buffett likes to talk about elephant hunting as a metaphor for acquiring big companies, but in recent years he's lamented the availability of well-priced acquisition targets. As a result, the company's cash balance has ballooned, a reflection of his inability to work his magic in today's market environment. In his most recent letter to shareholders this February, Buffett said, "Prices are sky-high for businesses possessing decent long-term prospects."

Berkshire's last major acquisition was Precision Castparts in 2016. The company now has $128 billion in cash and marketable securities, a sign that Buffett's value-based strategy has simply not been a good fit for the bull market over the last decade. By contrast, during the financial crisis Berkshire was able to get sweetheart deals by injecting cash into banks like Goldman Sachs and Bank of America.  While that cash hoard may pay off if bargains arise in the next recession, over the last few years it's only served to represent the Berkshire chief's frustration with the lack of reasonably priced elephants.

4. Berkshire has gotten too big

Buffett has often observed that small investors have an advantage over him. As the head of a company now worth $549 billion, Buffett can only move the needle by investing in other large companies. That explains why he picked up shares of Apple recently, and why Coca-Cola and Wells Fargo are two of his biggest holdings.

In Buffett's world, only a few hundred American companies are actually big enough to be reasonable investments for him, severely limiting his options. In Berkshire's earlier days, the company was much smaller and grew faster, in part because it had a wider array of investment options.

For years, Buffett has warned that Berkshire's returns would decline as it got bigger. It's a reflection of the law of large numbers, and that prediction from the Oracle of Omaha has come true.

5. One terrible deal -- and some other misses

One of Buffett's biggest moves this decade was his acquisition of Heinz, and then his decision to merge it with Kraft, with the help of 3G Capital, to create Kraft Heinz (KHC -0.34%). The new packaged food giant has stumbled badly, however. The stock has fallen 57% since it began trading in 2015, and crashed earlier this year when the company took a $15.4 billion writedown due to challenges facing brands like Oscar Mayer and Philadelphia. It also slashed its dividend, and revealed an SEC inquiry into its accounting. Buffett, whose company owns 27% of Kraft Heinz, admitted he overpaid for the company.

Berkshire also took a bath on IBM (IBM 2.54%), losing billions on a tech stock that he seemed to see as a sure thing earlier in the decade. The Oracle of Omaha started investing in IBM in 2011, but the tech giant soon languished, and was forced to slash its long-term earnings guidance as its transition to a software-and-services model did not yield the results the company hoped it would.

Those misfires don't just hurt Berkshire because the company loses money on them. They also damage Buffett's reputation, and with it the premium that Berkshire shares fetch.

What's next for Berkshire?

Buffett is now 89 years old, and he's unlikely to still be running the conglomerate 10 years from now. That almost certainly means that Berkshire's days of epic returns are over. The company would most likely benefit from a recession or another shock to the market that would give Buffett a chance to make an acquisition, but over the longer run one of Berkshire's two vice chairmen, Greg Abel or Ajit Jain, seem set to take over the company when Buffett retires or dies.

The absence of Buffett could lead investors to turn away from the stock, as his leadership has been closely tied with Berkshire's fortunes. However, it will also put his template to the test if his successor follows his model. The sprawling company could split up, or a new leader could inject the company with a more growth-oriented outlook. Whatever happens, the next ten years are likely to present a whole new set of challenges for one of the greatest success stories in American business.