Is it time to consider Warren Buffett, and by extension Berkshire Hathaway, a relic of the past?
Both the “A” and “B” shares are down 25% this year. Also, while the overall market has rallied nearly 30% since the late-March lows, Berkshire stock is only up a little more than 5% over the same period.
With the lag in performance, the inevitable questions have started: has an almost 90-year old Warren Buffett and a 96-year old Charlie Munger, his long-time right-hand man, finally, lost their touch?
Some longtime believers seem to think so.
What Shareholders and Investors Think
David Merkel, who writes the Aleph Blog, still has a small amount of Berkshire stock. However, he may soon sell off the rest of his holdings after Buffett’s inactivity during the recent downturn.
Editor's Inflation Warning: "Investors are woefully unprepared for what may be a once-in-a-generation shift in the market"
Merkel recently wrote, “I may sell off the rest of my holdings. The question is whether Buffett has an outdated view of how much the market could fall, given the skittish attitudes of economic-policy makers.”
He added, “I sold half of my holdings in Berkshire recently, after I learned that Buffett did nothing during the recent fall in the stock market. Market values are relative, and there were certainly decent values to be realized in late March. You wouldn’t blow the whole wad, but surely you should have bought something.”
Another Buffett investor, Bill Smead, recently voiced his frustration that the Oracle of Omaha was playing “maximum defense” during the recent downturn, instead of being aggressive.
Berkshire Hathaway is a top 10 holding of Smead’s Value Fund, but he says things need to change to improve shareholder value.
“Berkshire needs an activist,” he said, adding “We don’t own the stock for capital preservation. We own the stock to create wealth.”
A Columnist’s Take
Howard Gold, a columnist at MarketWatch points to Buffett’s success as an investor, noting that from 1965 through 2018, Berkshire racked up a 20.5% compound annual return, more than double that of the S&P 500.
But he says Buffett is “profoundly underperforming” against the S&P 500 during the entire 11-year bull market and investors should be asking “whether Buffett is still, well, Buffett.”
Most notably, Gold takes issue with the fact that Buffett is sitting on $130 billion in cash, which is earning almost nothing in interest, and Buffett seems reticent to put to work either investing in new opportunities or buying back Berkshire stock.
He also points out that some recent deals of Berkshire’s, including Kraft Heinz, Occidental Petroleum and a handful of airline stocks (which Berkshire dumped in April) have been “duds”, and “it’s hard to imagine what would propel those stocks higher.”
Another Journalist’s Opinion
Mark Hulbert, of the eponymous Hulbert Financial Digest, says Buffett detractors need to cool their heels.
“I think these skeptics are being unfair. No adviser, not even someone with as good a record as Buffett’s, makes money every year, much less beats the market. The belief that there is such an adviser exists is a triumph of hope over experience.”
He says that Buffett has not lost money in any of the last 10 calendar years, and has lagged the S&P 500 in six of the last 10 years. Hardly enough to turn your back on Buffett, according to Hulbert.
Whatever your take on Buffett, what investors should pay attention to is his advice. And recently, he made it very clear that investors are better off simply buying an index fund than trying to beat the market.
“In my view, for most people, the best thing to do is to own the S&P 500 index fund,” he said.
If Buffett says it’s easier to just buy an index fund, we should all listen.
Attention ALL Capitalist Subscribers: Elon Musk, Mark Cuban, and Richard Branson reveal how $25 gets you into one technology set to grow 2,000X BIGGER than Bitcoin.