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What’s wrong with writing off Warren Buffett – again

Two decades ago, in the final heady days of the tech boom, the media was writing off Warren Buffett. That proved hugely premature so what should investors make of a new set of articles with eerily similar headlines?

12/02/2020

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

“What’s wrong with Warren Buffett’s Berkshire Hathaway?” wondered this piece in Barron’s towards the end of 2019. The magazine was using an unsuccessful attempt to buy a tech product distributor as a jumping-off point to argue that a significant reason for the underperformance of Buffett’s investment vehicle relative to the wider US market was “the famed investor’s stubborn approach to capital allocation”.

It will come as little surprise that, here on The Value Perspective, we have a lot of sympathy with Buffett’s reluctance – in a year of objectively expensive valuations and record highs for market indices – to pay what he considered to be over the odds for assets. And it would be a natural consequence of this stance – as we touched on here a couple of years back – that Berkshire Hathaway would have seen its cash reserves build up.

What really interested us about the article, however, is that it was published almost exactly 20 years after a piece in the same magazine – and, as far as we can tell, by the same author – headlined What’s wrong, Warren? “After more than 30 years of unrivalled investment success,” it began, “Warren Buffett may be losing his magic touch …”

At one point, the Barron’s article commented: “To be blunt, Buffett, who turns 70 in 2000, is viewed by an increasing number of investors as too conservative, even passé. Buffett may be the world’s greatest investor, but he hasn’t anticipated or capitalised on the boom in technology stocks in the past few years.” Hindsight is 20/20 vision but it also tells us that, within weeks of that piece being published, the dotcom bubble had burst.

Since then, as we wrote in Value doubters a couple of years back, Buffett has largely gone on to justify the quote with which the1999 Barron’s piece concluded. Asked at a shareholder meeting in 1998 why he had not yet written a book, he is said to have replied he wanted to wait, adding: “Perhaps it’s unwarranted optimism that leads me to think that the best is yet to come.”

As we went on to acknowledge, only time will tell if he has the last laugh once again but, here on The Value Perspective, we cannot help thinking of Buffett, and other investors who have held firm to their preferred investment strategy, every time anybody proclaims ‘the death of value investing’ – something that seems to be happening with the sort of regularity it did in the latter stages of the late-1990s tech boom.

As it happens, that period was referenced by value investor and author Tobias Carlisle when we chatted to him in a recent episode of The Value Perspective podcast. “The last great value opportunity was the late 1990s and this is an opportunity on that scale,” he told us. “Value had some of its best performance ever through the early 2000s so I think it is likely we see some very good performance for value coming up.”

You can read his thoughts on the altogether harder question of What the catalyst for a value recovery could be – or hear the full podcast episode by clicking on the link below.

 

Author

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

I joined Schroders in January 2017 as a member of the Global Value Investment team. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet I was a member of the Customs Solution Group at HOLT Credit Suisse.  

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