“Has Warren Buffett lost his touch?”
That was a headline that leapt from the pages of the FT this week, and in some ways it’s a fair question. But it’s also the kind of article that historians may one day point to as a clue that… amid the chaos of 2020… investors really had lost their minds.
So what’s the answer?
Buffett and his business partner Charlie Munger enjoy cult status for their stewardship of Berkshire Hathaway over several decades. In that time they’ve built a formidable portfolio of companies and investments and delivered consistently solid, often market-beating returns.
But things have been tricky in recent years and they’ve undershot the market.
Some say part of the problem is that Buffett’s holdings don’t really reflect the direction of travel in the economy. While he was praised 20 years ago for ducking the worst excesses of the dotcom bubble, these days his portfolio is packed with old industry industrials, insurance companies and financials. With some exceptions - like a hefty holding in Apple Inc - there’s concern he’s missing out on new economy businesses.
To be fair, Buffett has always been happy to leave aside the “too hard” trading models he doesn’t understand. But even deals he has done have fallen slightly flat. With around $137 billion in cash, Berkshire has craved needle-moving acquisitions for some time. But deploying that capital hasn’t been easy. Major investments in recent years in the oil group Occidental and food maker Kraft Heinz haven’t worked out well.
And what really ratcheted up the media interest in recent months was Buffett’s move to sell out of airlines stocks. He has always had a love/hate relationship with the airline business. After a costly foray into the sector back in 2001, he said:
“Now if I get the urge to invest in airlines, I call an 800 number, and I say: 'Hello, my name is Warren, and I'm an air-o-holic.”
Times change, and earlier this year he actually increased his exposure to the sector. But when coronavirus hit, one of his few trades was to dump those stocks - only for a number to start recovering just weeks later. The jury is still out on the wisdom of that move.
Investing like Buffett
So what does this mean for investors looking to Buffett as a bastion of sensible, well-crafted…
