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Market Rally Highlights ‘Longstanding Concerns’ Over Warren Buffett’s Stock Picking



Market Rally Highlights ‘Longstanding Concerns’ Over Buffett Stock Picking

It’s been a tough few days for Warren Buffett.

Last week, a relatively unknown day trader gained national fame. This trader tweeted “There’s nobody who can argue that Warren Buffett is better at the stock market than I am right now. I’m better than he is. That’s a fact.”

Now, the Financial Times has published an article that seeks to answer the question – has Mr. Buffett lost his touch?

The article points out that Buffett, through his ownership of Berkshire Hathaway, had his worst performance in the last decade compared to the S&P 500 in 2019, and “2020 is shaping up to be nearly as bad.”

The article continues, “Instead of taking advantage of the coronavirus crisis that hit markets in March, Mr. Buffett was a casualty. Instead of highlighting Berkshire’s balance sheet strength, the crisis exacerbated longstanding concerns over the company’s direction.”

Cathy Seifert, an analyst at CFRA Research who covers Berkshire Hathaway, says two deals in particular stand out. The first is the $3 billion write-down of its investment in food producer Kraft Heinz, and the second is the $10 billion invested in oil producer Occidental Petroleum. That company is no longer paying a dividend and Berkshire’s 80 million stock warrants look worthless with the stock now trading below $2 per share.

“Those two things, I believe, have really tarnished Berkshire’s reputation for dealmaking,” Seifert said, adding that the Occidental deal “was an unmitigated disaster.”

Then of course there is Buffett’s selling of all US airline stocks, where Berkshire took a $50 million loss. Buffett made the announcement at the annual Berkshire meeting in early May. After this, shares of American, United, Delta and Southwest plunged. Since then, airline stocks have recovered with American up 86%, Delta up 52%, United up 76% and Southwest up 38%.

James Shanahan, an analyst with Edward Jones said “I am nervous that he may have missed this whole rally. If the rally started in late March and he was a net seller in April, it seems like . . . he missed it all. That’s frustrating. A lot of retail investors were ploughing money into the market and doing better than professional investors. I think you can include Buffett in that.”

Even Bill Ackman, the founder of Pershing Square, who has been a longtime admirer of Warren Buffett, sold his Berkshire shares. He did so believing that he can be more nimble and generate higher returns elsewhere.

Is that value investing – Buffett’s preferred style of investing – is no longer viable in today’s markets? Perhaps, says Christopher Rossbach, chief investment officer of J Stern & Co, a longtime Berkshire stockholder.

“If Berkshire is to have the prospects of generating the value it has in the past, it has to adapt by buying these companies that will generate significant value over the next 25 years,” said Rossbach, adding, “Both Warren and Charlie (Munger) have acknowledged that they have missed Amazon and that they should be looking at these companies but they have also said they don’t understand them. They have kept them in the box that Warren has on his desk that says ‘Too hard’. What will it take for them to take these stocks out of the box?”

At least one investor believes that Buffett may have the last laugh, should the country face a second round of economic troubles due to the coronavirus pandemic. In that instance, Buffett’s caution could be viewed in a more positive light.

Thomas Russo, a managing member of Gardner Russo & Gardner, says “Berkshire Hathaway remains designed to reward investors over time but not on time. “It is one of the reasons we say to people, ‘Don’t be in a hurry to spend that money. If you rush it, he could make a mistake.’”

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