Doug Kass, president of Seabreeze Partners Management Inc., says that Warren Buffett has made several investing mistakes in addition to the billion-dollar purchase of shares in International Business Machines Corp.
Last week, Buffett’s company Berkshire Hathaway Inc. disclosed that it had sold about one-third of its holdings in IBM. The news contributed to a 4 percent drop in IBM shares that pressured the Dow Jones Industrial Average.
Buffett acknowledged, “I was wrong” about IBM in an interview with CNBC. While Kass applauds Buffett for showing the flexibility to admit a mistake and move forward, he also points out other mistakes by the “Oracle of Omaha.”
“Berkshire's investment portfolio consists of a number of old-economy companies with ‘breached moats’ and less-defensible franchises,” Kass writes on Real Clear Markets, referring to a core principal in Buffett’s investment strategy: Buy companies that have a “moat,” or a strategic competency that wards off competition.
Berkshire Hathaway held its annual shareholder meeting on Saturday in Omaha,Nebraska.With thousands people attending or watching the proceedings online, Buffett and Berkshire Vice Chairman Charles Munger answered questions for five hours from the audience, analysts and reporters.
Kass says Buffett investments like Coca-Cola, IBM, American Express, Wells Fargo, Deere and Wal-Mart are part of the “old economy” that’s missing out on technological innovation and changing consumer behaviors.
“Buffett used to 'chase gazelles' in his acquisitions, buying companies that were available on the cheap due to controversies (i.e., Geico, Coca-Cola and American Express). But now, he chases elephants -- slow-growing and mature companies that sell for expensive prices,” Kass says.
He points to the auto dealership business that Buffett acquired as a sign of the old economy thinking.
“Auto dealerships are highly dependent on repairs and maintenance as revenue sources,” Kass says. “But these seem vulnerable to what many see as inevitable, swift market-share gains for electric cars that have fewer parts and require far less maintenance than gas-powered models do.”
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