It hasn’t been easy being Warren Buffett in 2020.
In late May, Bill Ackman’s Pershing Square hedge fund dumped its stake in Berkshire Hathaway. He said that he felt he could be more “nimble” at deploying capital than the typically ‘slow and steady” approach by Berkshire.
In June he became a bit of a punching bag for Dave Portnoy, the founder of Barstool Sports and now a day trader. Portnoy said he was “better at the stock market” than Buffett. He even added, “I’m better than he is. That’s a fact.”
The most recent knock against Buffett comes from a tweet by Roundhill Investments CEO and co-founder Will Hershey. He listed the five companies that have lost the most value this year. Berkshire Hathaway is fifth on the list, having seen $90 billion in value disappear. To compound the difficult year for Berkshire, two of the companies that have lost even more value this year, Wells Fargo and JPMorgan are two of the four largest Berkshire holdings.
Most of the criticisms aimed at Buffett have been similar to why Pershing Square pulled its investment: a lack of buying activity, particularly during the market correction from February through late March.
With a reported $137 billion in cash, Berkshire was nowhere to be found during the market swoon. It only recently dipped its toes back into the buying pool. When it did, it spent $10 billion for a stake in Dominion Energy’s natural gas assets.
According to one Buffett follower, this is all part of his plan.
Shane Parrish, who writes the heavily followed Farnam Street blog, said during a recent interview with Business Insider, “You have to be willing to look like an idiot in the short term to get the best long-term results. I’d suggest that because the future has become increasingly uncertain, he’s preparing for the widest range of possible futures.”
Parrish says that during the February to late-March correction, no investors really knew what was going on. Part of Buffett’s plan, says Parrish, is to do nothing until you know the best course of action.
“When you don’t understand with a certain degree of certainty, you sit out until you do.”
He added “People always seem to want the optimal solution for the moment, and thus he ends up looking out of touch at times. But you have to be willing to do something different to get different results.”
Buffett is sitting on cash to protect his investors and to be ready for whatever the market brings, said Parrish.
“You can’t win if you don’t finish… you can’t compound if you zero out,” Parrish said. “In periods of high uncertainty, you want to ensure you have the most possible options.”
If we see another leg down in the market, and Buffett is able to buy good, quality businesses at an even cheaper price than during the recent correction, there will be a lot of naysayers eating crow.