Monday, March 04, 2013

Warren Buffet's Magic is Gone

Every year I get to loathe and dread the annual updating of my financial classes.  I hate it even more than doing taxes, because I get to wait for the IRS/Congress to get their act together and update things like contribution limits for IRA's, 401k's, etc. Then I painstakingly go through my classes, updating each and every number and statistic so it is currently up to date.  The whole thing takes about 2 days and given how streamlined and bachelorized-efficient my life is, you can understand how 2 days of real work puts me in a fowl mood.

In addition, however, to basic contribution limits, tax law etc., I also have to update charts.  These needn't be updated every year, but invariably they get stale and I have to update them.  These charts include dividend yield ratios, the S&P 500 P/E ratio and so forth.  But another one I update is Berkshire Hathaway's performance chart.  This makes me revisit how the democrat's favorite businessman is doing and since I started teaching classes, I've noticed something about Warren-

He's losing his touch.

In the past he RARELY lost to the index, I believe only providing poorer returns than the S&P 500 for three years in three decades.  This earned him fame among academians and professors who could only study, but never replicate his performance.  But the past 10 years, his performance has been anything but "Berkshire Hathaway-eqsue."  He loses just as much as he wins, which adds further proof to my theory that whatever advantage he had, has been lost or whittled away by institutional investors and the market.

But don't let that stop leftists politicians from citing him every time they need other people's money.

Enjoy the decline, Warren!


Novaseeker said...

It's really things like the rise in program trading, the speed of the rise and fall of new industry types, and how a lot of institutional money is now involved in much shorter plays -- not day trading plays, but much shorter plays than the Warren/Graham approach. In that context, the biggest institutional money is moving the market now in huge ways based on a mix of technical and fundamental criteria, but a key is that so much of this is happening so quickly and based on program trading that a good amount of the profits to be had are sucked out of the market in this way, meaning that a value investor's stock prices are going to be jiggering around a lot as the institutional big money gets in and out and in and out again -- not even in that stock, mind you, but the impact of overall institutional moves on the market as a whole, including the prices of individual stocks, is substantial even if the stock in question is not the active target of the activity. It still isn't long enough, probably, to conclude that value investing is completely dead, but we're getting closer to being able to say that more definitively each and every year that we see this kind of trend continue.

Alex said...

Does being in a fowl mood give you goosebumps?

Anonymous said...

Cappy, you are wrong. I don't like Mr. Buffet's politics but his investment advice is solid. The top of the chart is cut off but if you had invested 10k with Berkshire (the column on the left) in 1999 you would have significantly more money now (over 30k) than had you invested in the index (column in the middle?)(15k). If you just use the last ten years its a similar result.

He basically crushes the index on the down years but sort of keeps pace on the good years. Perhaps this is a lesson on the difference on arithmetic mean and geometric mean. Also a lesson on how 'growth' stocks are generally over valued.

year BRK 10000
1999 0.005 $10,050.00
2000 0.065 $10,703.25
2001 -0.062 $10,039.65
2002 0.1 $11,043.61
2003 0.21 $13,362.77
2004 0.105 $14,765.86
2005 0.064 $15,710.88
2006 0.184 $18,601.68
2007 0.11 $20,647.86
2008 -0.096 $18,665.67
2009 0.198 $22,361.47
2010 0.13 $25,268.46
2011 0.046 $26,430.81
2012 0.144 $30,236.85

year index 10000
1999 0.21 $12,100.00
2000 -0.091 $10,998.90
2001 -0.119 $9,690.03
2002 -0.221 $7,548.53
2003 0.287 $9,714.96
2004 0.109 $10,773.89
2005 0.049 $11,301.82
2006 0.158 $13,087.50
2007 0.055 $13,807.31
2008 -0.37 $8,698.61
2009 0.265 $11,003.74
2010 0.151 $12,665.30
2011 0.021 $12,931.28
2012 0.16 $15,000.28

Captain Capitalism said...


Oh, you are right, i"m just flashing a little light on the "holy and sacrosanct" messiah. He isn't performing like he used to which means I believe something has changed. That's all.


Paul E. Zimmerman said...


What do you think the chances are that Warren's "talent" is fading because of recent economic circumstances that prompted many businesses to stockpile simple cash, combined with less punishing estate taxes? It's a lot harder for the Warrens of the world to swoop in and take advantage of the distress created by an illiquid estate colliding with Uncle Scam's death tax when estates are a whole lot more liquid and taxed a whole lot less.

sth_txs said...

Warren Buffet is a scumbag crony capitalist!

I don't know why anyone puts any stock in him at all.

T and A man said...

Of course things have changed, Buffet has always been a bad in a bear market.

Never has a market that's fundamentally bearish gone on for so long in his lifetime.

Anonymous said...

Well, Cappy, you are right in that something has changed. Warren himself intimated that BH was getting "too big" for the same returns he was getting in prior years. Even with all the jiggery-pokery of the program traders, the Graham principles still hold in a smaller investor market overall, especially in the area of corporate restructuring as a profit opportunity.

Incidentally, has anyone on the Left mentioned that Buffet established a not for profit trust for his own personal net wealth? (Gates did too, BTW). Methinks he wanted out from under the Federal Estate Income Tax, so why no wailing of "The feds aren't even getting it when he dies!!!!"

Unless, of course, the Left really want a 2 and 20% tax on everything (2% of all assets, 20% of all income) How long would it take to get it all?

El Bastardo said...

Oh, warren?

I especially love how his prison companies got their wooden flooring turned away by Canadian Customs because they don't approve of slave labor; which Warren's Corrections Corp. America company, and holdings in Georgia Prisons seem ready and willing to use our young men in prison to build things.

Fairly lucrative I hear?

And highly immoral. Liberal sage of investment indeed; and my ass.

Anonymous said...

Big time investors get big time leverage, and that got a lot of people in big trouble when they wanted 50x exposure to "low risk" derivatives like those time tested credit default swaps. In the 00's, the mouse beat the elephant. Less leverage was the better move.

In the 80's, when inflation and interest rates and bond yields were awesome, using big leverage was how to WIN. What has changed now, the new normal, is the absurdly generous federal reserve party punch bowl going around. It's a substitute for the dynamism and leadership of just a generation ago.

No one's special anymore. The environment doesn't allow for old school legends to thrive, just a slow grind. We're Japan now. The lost generation.

Anonymous said...

If you had just put the money in gold in '99, you would be up over five times by now. Buffet got beat by a hunk of shiny metel.

Bub said...

His best recent year vs s&p was '08 when he cut that questionable deal for gs stock and warrants.

Anonymous said...

Lucky for him his BFF Obama whacked the Keystone pipeline, otherwise he wouldn't have made those billions hauling the oil from the Bakken and the oil sands!
Funny how that works sometimes.....

Anonymous said...

Alex, it's a "foul" mood. Nothing to do with ducks or geese or chickens.


Not the same thing.

FSK said...

Even better, compare Berkshire Hathaway to gold.

Bub said...

He's a total crony capitalist. Insurance business has become a state mandated scam.

bob r said...

@Anonymous 5:34 -- you might want to go back and actually read what the Captain actually wrote. In other words: Alex was making a joke because he did read what was written.

Anonymous said...

Anon 1:57
"Buffet got beat by a hunk of shiny metal."

Those who bought gold at the end of the Carter era are only now breaking even.

Ghost of 503 said... Billionaire tax-cheat welfare queen.

I'd say guys like him are trying to user in some kind of new feudalism where you have to keep pumping money to keep them at the top and they use tax policies to keep you where you are.