Why does Berkshire Hathaway never advertise

Star investorWarren Buffett annoys investors with doing nothing

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

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

Berkshire Hathaway B share


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Since the company traditionally does not pay dividends, shareholders have a clear disadvantage compared to investing in an ETF on the index. In the case of share class B, the picture is similar to that of the legendary A-class. Since this was never split, it is considered the share with the world's highest price. In February it cost more than $ 340,000 at times, and is currently trading at around $ 275,000.

"Has Warren Buffett lost his flair?"

Buffett was looked after for a long time for the poor performance. He benefited from his status as an icon of value investing, i.e. investing in stocks identified as undervalued. For a long time, it was with this strategy that the share of the portfolio company developed twice as fast as the index.

But recently the criticism of Buffett has intensified. The “Financial Times” these days even asked the question: “Has Warren Buffett lost his flair?” The headline said “Too big. Too slow. Too old-fashioned. ”The trigger for the increased criticism was Buffett's approach at the height of the Corona crisis. Unlike during the global financial crisis, at the height of which he bought bank shares extremely cheaply, the star investor remained on the sidelines after the stock market crash in March. And not only that: At the lowest point in the markets, Buffett also sold shares in airlines that he had only added to at the beginning of the year. The losses were correspondingly high and Buffett had to be accused of procyclical behavior, as private investors often show.

The "chronic underperformance" of Berkshire Hathaway requires answers in view of some dubious investment decisions in recent years, emphasizes, for example, Cathy Seifert of CFRA Research. In addition to the airlines, two other deals drew criticism: Berkshire had to write off $ 3 billion on its stake in the food company Kraft Foods. And the $ 10 billion investment in the oil producer Occidental Petroleum led to high losses in value. "Those two things really damaged Berkshire's reputation for doing business in my opinion," the Financial Times quoted Seifert as saying. The Occidental business "was a catastrophe without end".

Extremely high cash holdings

But not just individual deals, but the composition of the Berkshire Hathaway portfolio has met with criticism. In addition to insurers and reinsurers, it includes railway companies, energy companies and retailers. Buffett was hailed for staying away from tech stocks during the dot-com bubble of the millennium. But now it is becoming apparent that with this insistence he could have slept through the structural change to the digital economy. Highly rated technology companies such as Google parent Alphabet, Apple and Microsoft have been the mainspring of the US stock market for years.

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

Is Buffett just waiting?

Buffett hardly seems to challenge analyst criticism. “We didn't see anything attractive,” said the at the company's general meeting in May to all those who asked him to make acquisitions during the crisis. And even critics agree that an activity in the insurance business in the crisis requires high cash stocks, since the damage from Corona cannot yet be foreseen.

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 another major setback due to a second corona wave.

 


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