NEW YORK – Warren Buffett has carved out a core stock-picking strategy of investing in companies with strong economic \”moats,\” businesses that have built, fortified and generated success from well-known brands making it difficult for them to succumb to competitive forces.
Why Warren Buffett\’s legendary run is due an end
The earth\’s most famous investor is on his way to avoid it. The legendary run of Warren Buffett, the 84-year-old CEO of Berkshire Hathaway, is coming to an end.
Berkshire seems sure her right person to replace him. But could anyone truly replicate his success? Many economists are less certain.
Buffett never was supposed to do in addition to he has. Within the academic lingo, markets ought to be \”efficient.” Prices must always take account of publicly available information, and will be impossible to predict. Stock prices can vary over time C they take \”random walks\” C but they cannot be predicted. Buffett\’s history has defied the odds.
But for a number of holdings in his stock portfolio, the moats might be drying up and the walls might be breached.
Stalwarts like International Business Machines, Coca-Cola Inc, Procter & Gamble Co for starters have showed declining revenue trends recently, and face competition that could make it harder for them to outperform the market in the way they did previously.
When Berkshire Hathaway Inc, the conglomerate Buffett has run since 1965, releases quarterly results on Friday – which will follow with his annual gathering in Omaha, Nebraska – it is likely to show that his largest equity-market positions trailed the broad-market Standard & Poor\’s 500 Index.
On average, the 15 biggest positions he owned after 2014 have gained 7.8 per cent in the last Twelve months, compared with a 13.1 percent rise for the S&P.
Buffett supporters – and there are many – would state that the 84-year-old investor is hardly exploring the short term, but what sticks out about a few of the larger holdings are weakening revenue trends that augur for worry about the long-term, not just the short term.
\”The moats aren\’t as deep and unimpenetrable as in the past,\” said Doug Kass, who runs Seabreeze Investment Partners in Palm Beach, Florida, and has questioned Buffett\’s investments in the past. He currently doesn\’t have position within the stock.
That is not to say Buffett is any kind of a slouch. Those 15 holdings, during the last five years, typically, are in front of the S&P, by having an average gain of 85 percent, compared with the S&P\’s 78 percent rise.
And he is able to still be opportunistic, as in the aftermath of the financial crisis when he acquired a US$750 million position in Goldman Sachs Group Inc that\’s now worth US$2.5 billion, as well as an option to buy 700 million shares in Bank of America Corp for US$5 billion – now worth US$11.2 billion.
What\’s less clear, however, is whether or not these previously unassailable franchises are facing competitive pressures which will continue to hurt sales growth. Buffett owns 76.9 million shares of IBM that as of last year had cost him US$13.2 billion, and that position is underwater; IBM is attempting to reverse 12 straight quarters of year-over-year revenue declines as it plays catch-up within the cloud computing space.