Tags: Berkshire Hathaway | Warren Buffett | Investors | Stocks

What's Wrong With Buffett's Berkshire Investment Strategy

What's Wrong With Buffett's Berkshire Investment Strategy
Warren Buffett (Getty Images)

By Thursday, 05 May 2016 10:48 AM Current | Bio | Archive

A Peruvian wedding and the recent Berkshire Hathaway annual meeting have a lot in common. That might not sound immediately obvious, but it’s true.

I’ve been in Peru for the past week. By lucky coincidence, the national Peruvian Paso horse competition (which my father-in-law won this year) and the wedding of my son’s godmother were both in Lima. So it was a solid week of obligatory celebrating (it’s been tough).

The thing is, it wasn’t your typical wedding. The bride was a Peruvian Catholic of Jewish ancestry and the groom an Indian American Hindu who spent most of his formative years in Oman.

The guest list looked a little something like a model UN meeting. And they somehow managed to make all of that gel in a single ceremony. Somehow… somewhere… they managed to find a Spanish-speaking Hindu priest in Lima to perform the Hindu ritual in a mixture of Sanskrit and Spanish. And they also managed to find a bilingual Catholic priest to perform the Christian wedding in English and Spanish. The only thing missing was the bilingual English/Yiddish rabbi to preside over the ceremonial breaking of a wine glass. It was a delightful melding of mismatched everythings.

Which brings me back to how it was just like the recent Berkshire Hathaway annual meeting.

You see, Warren Buffett is in the twilight of his career. His masterpiece – Berkshire Hathaway – doesn’t quite generate the returns it used to anymore. And while there might be a couple reasons for that, the single biggest one is that it’s gotten too big and too unfocused. There’s a hodgepodge of everything and it’s not doing investors any good.

Buffett generated the returns that made him famous in the 1950s to 1970s by concentrating and making just a handful of very large, very successful bets at any given time. That’s because successful investing needs focus.

But given the size of Berkshire Hathaway today, Buffett is effectively locked out of his own game. He’s said a few times in recent years that, were he running a small $100 million hedge fund, he’d deliver 50% annual returns like clockwork. Running a $360 billion conglomerate makes that impossible.

At that size, you’re essentially limited to mega-cap stocks. If you were to take a meaningful position in a smaller company, you’d end up owning the whole thing outright.

So my advice to you today is this: if you’re wanting a good party, then mix it up. A Catholic/Jewish/Hindu wedding in South America is a blast. But if you’re wanting decent portfolio returns, stay narrow and focus.

Don’t follow the Berkshire Hathaway model.

Instead, pick a strategy or a small handful of strategies that you feel comfortable mastering, and stick with them. Variety might be the spice of life. But when it comes to investing, stick with what you know.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing, he was long AAPL and MSFT. To read more of his work, CLICK HERE NOW.

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CharlesSizemore
Don’t follow the Berkshire Hathaway model. Instead, pick a strategy or a small handful of strategies that you feel comfortable mastering, and stick with them. Variety might be the spice of life. But when it comes to investing, stick with what you know.
Berkshire Hathaway, Warren Buffett, Investors, Stocks
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2016-48-05
Thursday, 05 May 2016 10:48 AM
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