Value investing: is Warren Buffett really losing his touch?

Value investing: is Warren Buffett really losing his touch?

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Warren Buffett has underperformed the market 4 out of the last 5 years. Surprising for a value investor?

Warren Buffett is being compared to Michael Jordan. 

Which wouldn't be that surprising, except this is Washington Wizards Michael Jordan we're talking about. Not the one who won all those championships. 

Oracle of Omaha! Has it really come to this? Have the mighty so fallen that you now call to mind one of the most oft-cited metaphors of faded greatness? 

The article I'm referring to was published Sunday in The New York Times, and then again today on Yahoo! Finance. There have also been numerous responses to it in Quartz and Slate, all of them posing pretty much the same question: Warren Buffett has underperformed basic index funds 4 out of the last 5 years–isn't that just a few too many to be considered a run of bad luck? The statistician behind the Times article says so. 

If I may interject, however.

This past month our current bull market turned 5, making it the fifth longest in history. It seems counter-intuitive, but couldn't this account for Buffett's "underperformance"?

Possibly. Over a slightly longer time frame, for instance 10 years, Buffett's still beating the Dow and the S&P 500 pretty handily.

Click on the interactive chart to track Berkshire Hathaway and major indices over time.

He is often quoted as saying that one should always "be fearful when others are greedy."

In a bull market, the largest gainers are riskier assets: like unproven tech companies and lower-quality stocks that lost the most value during the recession. These are the very companies Buffett eschews. 

Besides, since the analysis in the article only focuses on Berkshire Hathaway's (BRK) share-price, couldn't we just say that, outside of the 5 year time frame starting in 2008, Berkshire's shares traded at a larger premium than they did after a record-breaking, 30+% return on the stock market?

It stands to reason that investors are willing to pay more for a proven, cautious approach in bearish times. That's why they're called bearish. 

The premise behind value investing has always meant sacrificing the possibility of short-term gains. But value investors claim to have the long view in mind. Are they right, or just arrogant and, in this case, missing out? Let us know what you think in the comments.    

Click on the interactive chart to view data over time. 

 Here are six of Buffett's largest holdings based on the size of his stake in the company. Do you think they're market-beating picks or not?

1. USG Corporation (USG, Earnings, Analysts, Financials): Engages in the manufacture and distribution of building materials worldwide. Market cap at $4.34B, most recent closing price at $34.49.

Holds a 25.1% stake in the company worth $1,102,529,498.

 

2. The Coca-Cola Company (KO, Earnings, Analysts, Financials): Distributes, and markets nonalcoholic beverages worldwide. Market cap at $170.73B, most recent closing price at $38.62.

Holds a 9.08% stake in the company worth $15,492,000,000.

 

 

3. Moody's Corp. (MCO, Earnings, Analysts, Financials): Provides credit ratings and related research, data, and analytical tools; risk management software; and quantitative credit risk measures, credit portfolio management solutions, and training services in the United States, Europe, the Middle East, and Africa. Market cap at $16.81B, most recent closing price at $77.97.

Holds a 11.54% stake in the company worth $1,937,317,666.

 

 

4. DaVita, Inc. (DVA, Earnings, Analysts, Financials): Provides kidney dialysis services in the United States. Market cap at $14.64B, most recent closing price at $67.35.

Holds a 17.65% stake in the company worth $2,577,425,124.

 

 

5. American Express Company (AXP, Earnings, Analysts, Financials): Provides charge and credit payment card products, and travel-related services worldwide. Market cap at $91.37B, most recent closing price at $86.60.

Holds a 14.31% stake in the company worth $13,070,358,447.

 

 

6. Graham Holdings Company Common (GHC, Earnings, Analysts, Financials): Operates as a diversified education and media company worldwide. Market cap at $5.07B, most recent closing price at $701.10.

Holds a 23.39% stake in the company worth $1,207,638,624.

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research. Buffett's holdings sourced from CNBC.)

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