He’s been the «Omaha of Oracle» since before most of the reporters who cover him were born. But after an unmissable series of missteps, is the financial media finally starting to turn on Wall Street’s favorite billionaire?
All those ‘serious’ financial journalists who dismissed Dave Portnoy’s torrid affair with day trading as a novelty and/or fad are definitely paying attention now. After Portnoy set the investing community aflutter by proclaiming Warren Buffett a washed-up has-been, the Financial Times has followed up with a piece exploring these theme in greater depth.
Following his lackluster performance during this year’s annual shareholder meeting, where Buffett reported a historic loss for Berkshire Hathaway, while affirming that it’s massive cash pile had grown to $137 billion.
More recently, Wall Street analysts who cover the company have started to wonder: Did Berkshire sit out the entire rally?
«I am nervous that he may have missed this whole rally,» said James Shanahan, an analyst with Edward Jones. «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.»
If so, Berkshire can probably abandon its hopes of beating the S&P 500 in 2020, after missing the mark in 2018 and 2019 as well. The fact that Buffett, who built his reputation on his keenness for buying companies and stocks during down markets, sat out the drop is enough to question whether his financial genius is still relevant in a world where technology stocks — which Buffett had long shunned before his romance with Apple (which isn’t even a tech stock, according to Buffett) — are king. The Fed’s response ensures interest rates will be mired near zero for years to come. How can one possibly justify keeping so much dry powder on hand, unless one believes, like Gundlach, that the market is going lower, something that seems out of step with Buffett’s perennial bullishness.
Earlier this year, Buffett proclaimed his belief in banking stocks, and skepticism of tech, only for tech to outperform once again, while banking stocks have continued to flounder.
Even Buffett acolyte Bill Ackman dumped his Berkshire stake last month. He later argued in a letter to his investors that Pershing Square was «more nimble» than Berkshire. He essentially told his investors that if Buffett won’t use Berkshire’s cash pile to make investments on shareholders’ behalf, shareholders are going to take their capital elsewhere.
As of end Q1, 30% of Berkshire’s equity portfolio consisted of financials.
In other words, maybe the eponymous founder of Davy Day Trader Global is right: Maybe Buffett really is «washed up».
Berkshire Hathaway shareholders have more to worry about than Buffett’s skill at playing the public markets. Another sell-side analyst quoted by the FT pointed out that Berkshire’s purchases of major stakes in Kraft Hines (a deal which it helped arranged with Brazil’s 3G Capital) and Occidental may have permanently stained the conglomerate’s reputation.
Berkshire’s «chronic underperformance» requires answers, according to Cathy Seifert, an analyst who covers the company at CFRA Research, particularly in light of some questionable investment decisions in recent years.
The company had written down its holding in food producer Kraft Heinz by $3bn last year, she pointed out, while Mr Buffett’s $10bn investment in oil producer Occidental Petroleum was no longer paying a cash dividend and its stock warrants looked worthless now.
«Those two things, I believe, have really tarnished Berkshire’s reputation for dealmaking,» Ms Seifert said of the two investments. The Occidental deal “was an unmitigated disaster”. On top of this, Mr Buffett increased his shareholdings in America’s largest airlines at the start of the year before selling them at the peak of the coronavirus disruptions in April, crystallising a loss.
Unlike during the GFC, when hard-hit companies (this time around, the group included a preponderance of tech startups) needed to tap the market for emergency cash, they didn’t turn to Buffett; they turned to PE. That’s largely Buffett’s own doing: If you tell everybody who would listen that you don’t really invest in technology companies because you don’t understand them, don’t be surprised when those companies don’t approach you for an investment. But also, Buffett’s ignorance of what some call the «New Economy» — particularly his reluctance to embrace Amazon — is causing some longtime shareholders to seriously question whether Berkshire is primed to succeed in the 21st Century.
Some investors say Mr Buffett must find a way to reconcile his value investing philosophy with what in the dotcom era was called the new economy — which is no longer new. “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 Christopher Rossbach, chief investment officer of J Stern & Co. J Stern manages money for the Stern family, which has held Berkshire shares for decades, as well other investors. “Both Warren and Charlie [Munger, Berkshire’s vice-chairman] 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,” Mr Rossbach said. “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?”
One of the nice things about finance is that, for all one’s bluster, the proof is always in the pudding. Legendary investors can’t simply rest on their laurels. In finance, if you’re not winning, you’re losing. Buffett dumped airline stocks at a loss, and a million Robinhood traders scooped them up, nearly doubling their money in the span of a few weeks.
Have the times changed too quickly for Berkshire to keep up? Or have Buffett and Munger, by steadfastly resisting change, allowed the conglomerate to lose its sense of relevancy. Either way, the FT’s reporting staff has surely noticed by now that Benjamin Graham’s principles of prudence and responsibility don’t really fit with the millennial investing aesthetic.
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