Star InvestorWarren Buffett annoys investors with doing nothing

Investor Warren Buffett has to put up with criticismimago images / MediaPunch

Warren Buffett has become famous and rich as a stick picker. But the “Oracle of Omaha” also has its fans among passive investors. They point to the attributed statement by Buffett that after his death, his widow should invest the assets in an ETF on the S&P 500 stock index and in US government bonds. Well, the star investor, who will be 90 on August 30, may have followed his own recommendation earlier and invested in the index. The stock of its $ 441 billion holding company Berkshire Hatheway has been lagging behind the index, i.e. the overall market, for quite some time.

Berkshire Hathaway’s (Type A) stock has risen by around 1.5 percent in the past three months, roughly since the bottom of the corona crash in the stock market. In contrast, the most important US stock index, the S&P 500, rose a good 28 percent during this period. The index has been clearly ahead both at the beginning of the year and in the long term. In the five-year perspective, the S&P 500 saw an increase of around 44 percent, for Berkshire Hathaway only one of 28 percent.

Berkshire Hathaway B share

Berkshire Hathaway B stock chart
Course provider: L&S RT

As the company traditionally does not pay a dividend, the shareholders have a clear disadvantage compared to an investment in an ETF on the index. In the B share class, the picture is similar to the legendary A class. Since this was never split up, it is considered to be the share with the highest price worldwide. It temporarily cost more than $ 340,000 in February, and is currently trading at around $ 275,000.

“Has Warren Buffett lost his instinct?”

Buffett was long considered the poor performance. He benefited from his status as an icon of value investing, i.e. investing in stocks identified as undervalued. With this strategy, he had for a long time that the equity of the investee developed twice as fast as the index.

But lately criticism of Buffett has intensified. The Financial Times even asked the question these days: “Has Warren Buffett lost his instinct?” The headline said, “Too big. Too slow. Too old-fashioned. ”Trigger for the intensified criticism was Buffett’s approach at the height of the Corona crisis. Unlike during the global financial crisis, at which peak he bought bank stocks extremely cheaply, the star investor remained on the sidelines after the stock market crash in March. And not only that: at the bottom of the markets, Buffett also sold shares in airlines with which he had only increased at the beginning of the year. The losses were correspondingly high and Buffett had to be accused of being pro-cyclical, as is often the case with private investors.

Berkshire Hathaway’s “chronic underperformance” requires answers given some dubious investment decisions in recent years, emphasizes Cathy Seifert of CFRA Research, for example. In addition to the airlines, two other deals drew criticism: Berkshire had to write down $ 3 billion on its stake in the food company Kraft Foods. And the $ 10 billion entry into the oil producer Occidental Petroleum led to large losses in value. “In my opinion, these two things really damaged Berkshire’s reputation for doing business,” quotes the Financial Times Seifert. The occidental business “was an endless catastrophe”.

Extremely high cash holdings

But not just individual deals, the composition of Berkshire Hathaway’s portfolio is criticized. In addition to insurers and reinsurers, there are railway companies, energy companies and retailers. Buffett was celebrated for staying away from technology stocks during the dotcom bubble at the beginning of the millennium. But now it is becoming apparent that this insistence could have overslept the structural change to the digital economy. Highly valued technology companies such as Google’s parent company Alphabet, Apple and Microsoft have been the drivers of the US stock market for years.

Buffett’s adherence to an extremely high cash holdings, valued at $ 137 billion, has also met with criticism, giving the company top credit ratings. The money is in the bank and is paying less and less interest, also because the US Federal Reserve has aggressively cut interest rates with the outbreak of the corona pandemic. But when stock prices plummeted and many investors saw this as an opportunity to buy, Buffett did nothing but hoard money. “I’m nervous that he might have missed this whole rally,” quotes Financial Times James Shanahan, an analyst with investment firm Edward Jones.

Is Buffett just waiting?

Buffett hardly seems to contest the criticism from analysts. “We saw nothing attractive,” said the one during the company’s general meeting in May to all those who asked him to make acquisitions in the crisis. And even critics approve of the fact that an activity in the insurance business in the crisis requires high cash, since the damage to Corona is not yet foreseeable.

And maybe Buffett is just waiting for the really good buying opportunities. After all, it is far from certain that the stock markets will not suffer a major setback after a second wave of corona.

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