Has Warren Buffett Lost His Touch?

Warren Buffett is arguably the most iconic investor of the past century. In recent times, however, he has struggled to beat the market average. He famously avoided tech for many years, and has even been criticised by the president for selling airlines shares.

This got me thinking... is Warren Buffett still the great investor he once was - let's analyse! [Note: Please watch the video in full before commenting!]

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DISCLAIMER
This is not financial advice. The speaker is not a qualified financial advisor. These videos are intended for entertainment and general information purposes only. Nothing herein shall be construed to be financial, legal or tax advice.

[TomHeaveyInvesting]

Warren Buffett: "I see you scrolling there... don't be out of touch with the like button" ☝🏻

[alkahalics]

It’s just funny how some people think they know better than Buffett just from betting right on a few stocks in a volatile market

[flakgun]

People have claimed that Warren buffet has been out of touch for 50 years.

The old man continues to deliver

[ShoelessNomadThailand]

He is a legend and knows the markets are fake at this time. No hedge fund is investing corporate funds. Cash is king and being debt free is so important. The recession is coming we can't keep just printing money. Gold could be king. I'm 27% up year to date.

[StockStory]

In 1999 when everyone was bidding up non earning dotcom companies he warned newer investors that the market had a high risk. They laughed and said he was too old and washed up for the new economy as they were making big money on dotcom companies with no earnings. It ended very badly for many of them.

Now he doesn't want to hold companies who have crashing revenues or no earnings or even are going bankrupt. Even though novice investors are making money and saying he is over the hill he is staying with his investing system of investing. Somehow it sounds like 2020 is rhyming with 1999.

In the end great investing happens over decades not months of trading mania. The future will tell but the stock prices are out of sync with the value of many companies. Let's dial back in 5 years.

[kylekenza]

Since the shares of Berkshire Hathaway are at such a high value, he knows that many of Berkshire's retail shareholder have most of their networth in the company. Therefore he states in his essays that he feels a responsibility to make sure he doesn't make speculative mistakes effecting the networth of his partners for a few extra points a year. When he refers to not understanding a technology company he is referring to the economics not the how the software is written. It is true that technology companies are much more volatile and that it is much more likely a small group of people with their laptops and some seed money could take over an entire industry. In the case of apple, Buffett did not invest until he recognized the company as a consumer franchise in which case the economics of the company changed to a more reliable model that Buffett is comfortable owning for the next 150 years.
I would argue that he hasn't lost touch only continuing to operate under the same fundamental principles. I would also argue that he is aware of the new evolving market yet chooses to ignore this because anyone who thinks you have to be in tech to beat the market lost all their money in 2000 and anyone that claims a 90 year old can't understand tech has never met a computer science professor...
Just to be clear I am a 22 year old programmer not a grumpy 50 year old

[bamdad]

I dont think buffett is out of touch at all. I think the market is overvalued and it should not have grown as big as it did hence why its a bubble. That said, every time someone has made fun of buffett, they ended up crying in long term. Buffett probably has access to information we don't too. Take into account he is NOT alone in these predictions either. . Few of these investing legends are all following his foot steps. This causes for alarm. Has he been wrong before? yes many times but that just means hes human.

[kentrader]

He's just playing the safe game. When you're one of the richest people in the world, you don't need to take chances on a volatile market.

[Michael-ghys]

Warren Buffet does not invest based on stock price but based on fundamentals of the business.

[cdo]

Tom, thank you! Another very insightful, fair and balanced analysis of the performance of an investing genius. Our investing group has followed Buffet's value principles for many years, with generally good results (especially picking up BRKB in 2009 after the crash ; ). A few points (a couple of which you made very well):

1. The difficulty of producing above-market returns as a fund grows is exceedingly difficult and very important here, as you point out. Another famous historical example to illustrate this was the Fidelity Magellan stock fund. From 1977 and 1990, Peter Lynch (who is another important investing legend that I recommend you research) averaged a 29.2% annual return in Magellan, crushing the S&P, and increasing AUM from $18M to $14B! As the fund ballooned, returns waned somewhat. A few tried to complain that Lynch lost his touch, but he was really a victim of his own success.
2. Buffet strongly prefers to own entire companies, and retain excellent management to run them, rather than taking a 'stake' in a company. People don't understand this. He wants to own great businesses for the long-term. Even if he understood them, he can't do this with tech giants.
3. Missing out on a few months of returns on airline stocks is likely immaterial to Buffet. He never tries to time the market. He sees that an airborne virus has completely changed the business prospects of this industry, likely for years to come.
4. The market has been historically overvalued for a long time, even after the recent crash (see Shiller PE ratio). As a value investing group, we finally realized this when we simply couldn't find any reasonably priced stocks last year, no matter how hard we searched. This hadn't happened in over 20 years. Warren also sees this, which is why he is sitting on so much cash, as he can't find a deal on businesses to buy (see 2. above).
5. Obviously you're also right that you simply can't avoid technology as an investor, even as a value investor. Buffet has had mis-steps and missed out here, clearly. No one is perfect. I'm starting to realize that another aspect of diversification that may be important to improving overall returns (in addition to asset class, country, etc. that you've pointed out numerous times) is diversification of investing strategy. This is much more challenging. But, I'm now looking at finding companies/funds that are likely to create disruptive innovation in tech sectors, and even adding technical analysis to my tool box (heresy! ; ). Back to point 1., Lynch was famous for talking to his daughter about what trends she was seeing in the mall as a way to identify a potential investment. I do the same with my sons regarding the trends they see on the internet.

Like you, I love learning about investing, and appreciate all the great energy, effort and information you bring to your audience. Cheers!

[En_Gho]

No Warren Buffet has not lost touch but the American economy has. Something that I see a lot of YouTube discussions miss is the fact that investing does not occur in a permanent vacuum. The conditions of the economy from decade to decade, and more importantly from era to era, shift dramatically, which is something only economic historians would observe.

When Warren Buffet began his investing career, the United States was in a period of unprecedented economic growth unlike any other period in human history. No. That is not hyperbole. Robert J. Gordon discusses this period comprehensively in his book, "The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War." Essentially, for most of human history nothing significant happened in terms of economic growth. Economic productivity remained consistently slow for thousands of years, growing only by small increments every century. The American farmer in 1776 was only modestly better off economically than the farmer in Ancient Rome. However, after the U.S. Civil War, the United States experienced an unprecedented explosion of aggregate economic growth and productivity. Consider that so many major innovations occurred between 1870 and 1970, a period described by Gordon as "the Special Century." Within this little one-hundred year period, life was transformed forever by innovations like electricity, the telegram, telephone, automobiles, airplanes, air conditioning, vertical buildings taller than previously imagined due to improved plumbing, etc. It was the age of rapid industrialization and the rise of urbanization. And these innovations were not only limited to technology, unlike today, but also every sphere of life. For example, within healthcare this same period saw the advent of vaccines, chemotherapy, modern surgery, germ theory, the modern hospital and clinic, which we are so familiar with today, etc. But this period of economic growth and innovation stopped in 1970. Since 1970, there has been a steady decline in economic growth and productivity, except in information technology, communication, and entertainment. This is why people today are always amazed by technology but ask yourself, when was the last time you were amazed by an innovation in healthcare? Our response to COVID-19 was essentially no different from the American response to 1918 Influenza (Spanish Flu) one hundred years ago, painfully illustrating the lack of innovation within the healthcare industry. Economists attribute this decline to what they term headwinds, especially the rise of wealth inequality, racial injustice, and climate change because these three correlate inversely with the decline of economic growth and productivity.

Now back to Mr. Buffet. Well what do we know. He began showing a decline in performance at the same time that economic growth began to decline, around the 1970s and it kept pace every decade, meaning as growth fell more every decade so too did Buffet's performance. In addition, it is true that Buffet's decision to avoid analyses of technology companies hurt him, but that only painfully confirms the thesis that the only areas where innovation has continued since 1970 is precisely information technology, in which deal companies like Amazon, Facebook, Netflix, Google, Microsoft, and Apple. None of this is Buffet's fault. It's the economy that has gotten our of wack. What is surprising is that he continued to beat the market until 2014. That means that even avoiding technology, which we have established was the only industry to continue its historic run of innovation and economic growth since 1970, he still found enough value in non-tech companies, companies suffering from declining growth, to beat the market. That is impressive since it means getting more out of less, literally. Anyone can use the hack of simply investing in tech companies today and make themselves feel as if they are a great investor but the reality is that the gig is up now and everyone has known for some time that only tech can outperform the market. And as we move in all the wrong directions, for example away from globalization, which literally today I read some experts claim has already peaked and will decline due to isolationism and import tariffs adopted by countries looking to create more resilient supply chains rather than low cost alternatives as in the recent past, we will see that it will become harder for companies to profit, and that's without adding in the economic contraction due to this pandemic. Experts like Ray Dalio have already stated their professional belief that we will likely experience a loss decade. Certainly the United States government agrees as they predict that GDP will not return to previous levels until 2028. Eight years is what it will take to return to normal, not accounting for what it will take to make up for lost time; the eight years are simply to return to February 2020 levels of economic production but making up for 8 years of loss will take longer. So, the market will be harder to beat in future generations. We may never see a run like Buffets ever again.

[gourabbanerjee]

I have just two things to say
1. How much percent of his net worth was in airline stocks? He made lot of money in Apple which is 36percent of berkshire portfolio. The top 6 holding made significant money for him.This is value investing. Heads you win tails you don't lose much.

2. He has insurance contingencies, and other current liability in company since his holding in insurance company. And he can not invest in very small company unlike his partnership days. So his return has been down. He did not lose the touch it is the size of the money that is hurting his performance. He is the one who made 29.5 percent compounded return for 13 years.

[raymondhernandez]

As an avid Buffet fan, I’ve been applying his approach to tech investment. Just look at TSMC over the past 20 years. It’s emerging as a dominant player in the semiconductor world, beating out Samsung and Intel. Yes, I like it’s outlook for the next 5 years.

[Mark]

Don’t forget that Berkshire is not an ETF, it also owns many insurance companies. With the pandemic and riots, insurance companies face lots of claims. Thus they need to set aside a lot of money for a lot of claims. This could explain him holding a lot of cash.

[simasama]

The reason he cant beat the market anymore is beacuse he cant pick among the small and mid cap stocks anymore. He said so himself "noone can consistently make a 20% return on big money". So he has to stick to mediocre, but ok companies like apple. Speaking of course from his famous value investing perspective, and not speculation on stocks.

[rezilearevir]

In fairness to Mr. Buffett, he has been forthright in saying, for the last 20 years or so, that as Berkshire gets bigger, outperforming the stock market becomes harder and harder. While he does not guarantee returns, if you read between the lines, he expects Berkshire to beat fixed interest rates and protect itself and its shareholders against unexpected disasters with its fortress balance sheet, at least better than most companies. If you disagree with that, then Berkshire is not your company.

[rayeason]

I have a sizeable amount of $ in Berkshire. Why, because he is a very clever diversified investor and unlike a mutual fund, he does not charge me management fees! I am looking for wealth preservation and I have faith in Warren Buffett.

[nicholasinnorthcarolina]

Hi Tom. Good overall analysis of Buffett long-term and recent. Yes, he missed tech and I would say also recently healthcare. Three things about Buffett and Berkshire the company. He loves
Cash flow, float (insurance cos), and Collecting dividends. A constant cash flow coming into his company that he then reinvests (a form of self funding, perpetual, LT positive compound interest). Something we all should all emulate. Second, his biggest single gain came from buying GEICO for a few dollars a share when it was on the verge of bankruptcy, when Berkshire was a young company. A 1000+ gain helps a long term average. Third, a BRK replication model, can produce similar returns. Example portfolio: 30% SPY, 40% Sector ETFs (XLF, XLE, XLK, XLP, XLU), 30% (3) individual stocks targeting 50-100% gains. For example, Moderna, ZOOM, Dexcom. Cash flow into the portfolio comes from, sale of individual stock gains, dividends and monthly cash investments of at least 1% a month (12%) annually. Over the long term, the estimated portfolio return is 20%+, doubling every 4 years. New stocks, replacement stocks come from market analysis and Peter Lynch stock picking wisdom. It’s not a get rich quick approach, rather, it emulates Warren Buffett’s LT view. BTW, The gains from the 3 stocks mentioned were over 100%, since April. And will help sustain the portfolio thru the next 20-25% leg down, when it will be time to pick a new 3-3tock, 30% portfolio allocation. Happy Investing and thank you warren for teaching us how to invest. 🙂

,

[anmolsachdeva]

He has stated in his essays that he, at times, knows that the company that he has purchased is going through a tough time and the returns might not be good enough but he can't just abandon that company. He has to think as the owner. He can get better returns by selling that company but he is not a hedge fund manager, he is buying businesses and running a company of his own. He has to think like an entrepreneur.

[BosonCollider]

His portfolio beat the SPY since the lows and book value is up. The only reason why Berkshire shares are down is because the P/B went down, and Buffett hasn't deployed cash for buybacks yet.