Has Warren Buffett Lost His Touch?

The Oracle of Omaha has been under performing the S&P 500 by 17% in 2020

Has Warren Buffett Lost His Touch?

You’ve probably heard all of the arguments before:

“Warren Buffett is washed up.”
“He’s past his prime.”
“He manages too much money to find good deals anymore.”

And with Berkshire Hathaway underperforming the S&P 500 by 17% halfway into 2020, I understand the sentiment. However, this isn’t the first time that people have questioned Warren Buffett’s competence as an investor.

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He is WARREN BUFFET. Its fair to say that his thinking about stock investment starts where most of us ends our thinking. We all are just small investors. Even if his fund underperform badly for next 2-3 years, he is still one of the greatest investors we have ever known.

I have not read the article but feel that it will serve only 1 purpose - author will be rewarded for writing it. There is lot of noise - like this article - about WB and it will always be there. Good investor will not focus on noise and just get on with understanding WB's reasoning for a particular investment.

 

Provocative article title aside, it's actually a good read that looks at time frames (rather than just 2020) and the impact on return from Berkshire's investment mix.

I think the article hit the nail on the head in highlighting how the company has lagged the index because of the surging impact of tech firms.

What I will say though is that it's a bit unfair to name Buffet and attribute all of Berkshire's performance/underperformance to him when in increasing years decisions have been made by other people in the group!

 

The problem isn't Buffet losing his touch, it's that the fundamental principles of how risk is priced and rewarded has been distorted by central banks pretty much since the GFC.

Cash rates have been so low for the last decade that a lot of rubbish companies have been able to stay afloat at unreasonable valuations. It has only gotten worse since the covid crisis started. How is Buffet meant to snap up distressed assets when the Fed buys them first? Corporate failure and creative destruction in the share market seems to be too unpalatable for central banks these days.

I guess the failing of Berkshire would be not identifying and riding this trend earlier, but it would go against their entire strategy as a defensive value fund. But even Buffet can't fight the fed.

 

Buffett can’t fight the Fed. Nor can he fight the PBOC. Fed Put and China Put is the trade now in healthcare and tech. Still buying old stuff like banks or airlines, well all you’ll get is that dividend. Mind you even that’s getting scrapped at some banks.

 

Analyzing Warren Buffett’s Underperformance in the Past - Market Realist

"Looking at Berkshire Hathaway’s returns between 1965 and 2019, it has grown at a CAGR of 20.3% compared to the S&P 500’s CAGR of 10.0%".

Edit- The reason Buffett has under performed recently is because he is a value investor while the stock market since GFC has been favouring growth stocks. From reading a couple of his books he is also skeptical of tech companies.

 

Yes he's very sceptical. The irony though is he finally caved and bought Apple, although some would argue it's not a tech company.

 

Does the value factor still exist?

 

Yes, you can argue everyone buys because they think something is of good 'value'. But if you are referring to just buying businesses on low PEs then that can be a very dangerous prospect even more so than buying high pe growth companies as many on low pe's may not be around in 10 years time in which case they may be overvalued as they will be eventually worth nothing.

 

If Berkshire was buying into a bunch of Buy Now Pay Later stocks like the current Robin Hood cowboys then it would probably be pilloried as a reckless speculator, so it's difficult to see how they can get some clear air....

Hence Berkshire Energy Dominion deal.

 

The fact that he struggles to see value makes me think holding stocks right now is (higher) risk.

 

There was another recent article about diversification. Apparently 43% of BH holdings are in Apple. Way up from the 20% quoted in the article.

Given the rise in Apple’s share price recently one would assume the BH share price would follow suit.

But it hasn’t.

Maybe the market has fallen out of love.

 

Diversify? Almost half of Warren Buffett’s Berkshire Hathaway portfolio is now composed of a single stock

Berkshire now owns more than $91 billion in Apple shares, representing 43% of the conglomerate’s entire portfolio, there are 46 securities in the portfolio, and if you added them all together — not including the No. 2 holding, Bank of America BAC, +5.49% — they still don’t equal the Apple stake, which proves just how much the big tech names have paced the stock market of late.

Earlier this year, Buffett explained to CNBC how critical the Cupertino, Calif.–based technology behemoth is to Berkshire’s overall performance. “I don’t think of Apple as a stock. I think of it as our third business,” Buffett said, placing the iPhone maker alongside Berkshire’s wholly owned subsidiaries Geico and BNSF. “It’s probably the best business I know in the world.”

 

Latest 13F

Berkshire Hathaway Inc - 13F Filing - Warren Buffett - March 31, 2020 - Fintel.io

Back of the envelope AAPL is about 15% of Berkshires NTA. The listed portfolio is less than half the value of the total, with the rest being wholly owned subsidiaries and cash /Cash equivalents.

BRK has suffered from P/B compression recently (Akin to LIC Trading at high premium coming back to NTA) and is now at lowest P/B for a long time. At BRK’s size I really don’t see a case for long term outperformance when adjusted for risk. Love the company and what Wazza and Charlie have done...they were a quasi PE outfit with a great stock picker.

 

Here is an interesting video where Buffett clearly explains his views on value vs growth.



Apart from Berkshire size disadvantage the reason why Buffett hasn't been buying much is his definition of growth is growing stream of free cash flow that should accompany with it. What is happening mostly right now is companies prices being bid up on just growing sales. Except few most new tech companies are not earning anywhere close to what their market cap says. If earnings are not growing this cannot last for long and Buffett knows that. Surely there will be few great companies born out of this cloud revolution but Buffett will wait until the winner is known and when the time and price is right before investing. Cash will not be an issue for him.

Cheers
Oracle

 

Billionaire investor Bill Ackman likely lost more money on Warren Buffett's Berkshire Hathaway than 'anyone in the world' | Markets Insider

 

Warren Buffett’s Berkshire Hathaway bought back a record $9 billion in stock in the third quarter

Full article here

Cheers,
Oracle.

 

Warren Buffett's Berkshire Hathaway approaches 200% gain on Snowflake in under 3 months

• Warren Buffett’s Berkshire Hathaway invested $US735 million in Snowflake when the cloud-data platform went public in September.
• The famed investor’s company bought around 6.1 million shares that have roughly tripled in value to as much as $US2.1 billion on Monday, a roughly $US1.4 billion unrealized gain.
• Many Berkshire investors were surprised by the Snowflake investment, as Buffett has avoided unprofitable technology companies and IPOs for most of his career.
• However, one of Buffett’s two portfolio managers and the CEO of Berkshire-owned Geico, Todd Combs, made the wager after experiencing Snowflake’s offerings as a customer.