Just in from our Bianna Golodryga:
As the market continues to disappoint, the Oracle of Omaha's investment strategy has disappointed even his staunchest supporters. This is one report from a big investor, who was also one of Buffett's biggest fans. Indeed Buffett's Berkshire Hathaway has suffered major losses this year.
The exceprts below were written by Douglas Kass, general partner, Seabreeze Partners Management.
| Warren Buffett Has Lost His Groove I have worshiped at the altar of Warren Buffett since the late 1970s -- ever since an investor and acquaintance, Conrad Taft, introduced me to his investment methodology and style at Berkshire Hathaway. In fact, my writings over the past seven years have often been punctuated with Buffettisms. I have repeatedly objected to, scoffed at and refuted criticisms of Buffett's strategy on this site and elsewhere. The weight of the evidence suggests that Warren Buffett has recently been swimming naked. He has lost his groove, and here is why. Style drift. In the process of establishing a large derivative position on the S&P 500 by shorting puts, Buffett has deviated from his long-established investment discipline of avoiding "market plays" and of avoiding "financial weapons of mass destruction" (derivatives). This "play" has led to continued, multibillion-dollar losses over the past few quarters. Recent share acquisitions of Goldman Sachs (GS) and General Electric (GE) have been ill-timed. Buffett has convinced Corporate America (and Corporate Europe!) that he is a kind, avuncular sort, an easy and quick-to-deal with investor of last resort. Toward that end, Buffett recently came to the rescue of General Electric and Goldman Sachs, investing $8 billion in both issues combined. While both investments were made on favorable terms -- they are both seriously underwater -- not too long ago Buffett purchased $5 billion of 10% preferreds in Goldman Sachs, with five-year warrants struck at $115 per share. At the time, Goldman was trading at $125; it now trades at $74 per share. Buffett's notion of long term is now becoming a convenient shroud to poorly timed investments. Berkshire's list of longer-term holdings includes a great many successful positions based on relationship to cost, but the cost/market gap is rapidly closing. Importantly, over the last few years, the performance of many of these investments -- including Comcast (CMCSA), Coca-Cola (KO), Kraft (KFT), and U.S. Bancorp (USB) -- have underperformed the market dramatically. Over time, Warren Buffett has been the greatest investor extant. His long-term investment performance is unparalleled, but his performance over the past five years, and especially over the past year, is beginning to trail off badly. Warren Buffett has lost his groove. The question is whether he will get it back any time soon. |
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