Tags: Warren Buffett | Berkshire Hathaway | Copycats | Investing

Buffett Copycats Risk a Pounding as Berkshire Portfolio Suffers

Thursday, 23 October 2014 07:07 AM

It's not been a good time for Warren Buffett wannabes.

Sharp drops in many of the stocks owned by Buffett's Berkshire Hathaway in recent weeks hit the sprawling conglomerate's equity portfolio hard. The loss on seven of those holdings alone totals more than $5 billion provided Berkshire's stakes have remained the same since June 30, the last date for which they were disclosed.

In particular, Berkshire's been stung by large holdings in IBM and long-time Buffett favorite Coca-Cola, both of which tumbled after disappointing third-quarter results. His penchant for energy stocks hasn't helped either, given the damage done to the prices of energy assets by the slumping global oil price.

For the world's third richest man, unrealized losses of a few billion dollars aren't necessarily anything to cry about.

Buffett's ability to sit tight and ride out short-term market gyrations has been one of the keys to his success as a long-term investor. And unlike, say, mutual fund managers, he doesn't have to worry about redemptions forcing him to sell stock.

But for others — fund managers, smaller institutions, even retail investors — who often try to follow in Buffett's footsteps, the losses could be harder to get over.

Berkshire Hathaway did not respond to requests for comment.

With 400 million shares of Coke on June 30, Berkshire is the company's largest shareholder — and Buffett is perhaps the world's most famous Cherry Coke fan.

"I love Coke, I love the management," he said in a television interview in April, as the company faced a controversy over an executive compensation plan.

Coke shares plunged 6 percent on Oct. 21 after it said that quarterly profit slumped. The shares are down 4.1 percent since June 30 for a possible paper loss to Berkshire of $696 million.

Similarly, IBM — of which Berkshire held about 70 million shares on June 30 — is down about 11 percent since the end of the second quarter, with much of that decline occurring after it ditched its 2015 operating earnings target this week. Since June 30, IBM's slump may has cost Berkshire nearly $1.3 billion on paper.

Short-seller Doug Kass has repeatedly pointed to both of those companies as weak spots in Berkshire's portfolio.

Kass, who runs Seabreeze Partners Management in Palm Beach, Florida, was named Buffett's "credentialed bear" for the 2013 Berkshire Hathaway shareholders' meeting. To spice up proceedings at the gathering, which is attended by thousands of Berkshire shareholders, Buffett got Kass to present the bear case against the conglomerate, which owns dozens of businesses selling everything from ice cream to insurance.

"Very few people have the sort of pain threshold and long-term time frame and risk appetite that Warren Buffett has," Kass said. "His risk profile is different than a mere mortal."


Among the other stocks that were in Berkshire's portfolio at June 30 that have dropped significantly are banking group Wells Fargo, credit card group American Express, energy giant Exxon Mobil, Canadian oil producer Suncor Energy and automaker General Motors.

Exxon often sees its fate tied to the price of oil. With crude down about 18 percent so far this year, Buffett's 41 million shares of Exxon at June 30 would be worth almost $311 million less now.

Earlier this month, Berkshire Hathaway said that it had sold off some of its stake in troubled British grocer Tesco, taking it to below 3 percent from around 3.96 percent of Tesco's shares in May.

Those shares are off 45 percent this year in the wake of its worsening performance, exacerbated by an accounting scandal. Buffett himself called that investment a "huge mistake."

Because Berkshire Hathaway owns stock in dozens of companies, several of its holdings are performing better. Retail behemoth Wal-Mart, for example, is up 1.3 percent since the end of the second quarter. And consumer products maker Procter & Gamble is up 7.2 percent from June 30 to Oct. 22.

For all its substantial portfolio holdings, the cornerstone of Berkshire Hathaway's earnings comes from the dozens of businesses it controls, including insurance company Geico and railroad BNSF. Those companies and others helped bring Berkshire's profit last year to a record $19.48 billion.

Nor have investors punished Berkshire Hathaway's own stock for the recent market gyrations. The class A shares of the conglomerate are up 16 percent this year, and up 8.75 percent since the second quarter.

That handily beats the S&P 500's tepid 4.3 percent gain so far this year.

Last year, for the first time since Buffett took control of Berkshire in 1965, the company's five-year gain in book value per share underperformed the S&P 500's five-year rise, including dividends but before tax.

But Buffett has often said that Berkshire Hathaway will do best against the index in lackluster or even down markets. In recent years, stocks have been surging.

And Buffett's preferred holding time of forever is well known, with the so-called Oracle of Omaha an advocate of buy-and-hold strategies for everyone from himself through Mom-and-Pop retail investors.

Indeed, Buffett himself has often praised falling markets as buying opportunities.

"Tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values," he wrote in his annual letter to shareholders this year.

"A climate of fear is your friend when investing; a euphoric world is your enemy."

© 2020 Thomson/Reuters. All rights reserved.

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It's not been a good time for Warren Buffett wannabes. Sharp drops in many of the stocks owned by Buffett'sBerkshire Hathaway in recent weeks hit the sprawling conglomerate's equity portfolio hard.
Warren Buffett, Berkshire Hathaway, Copycats, Investing
Thursday, 23 October 2014 07:07 AM
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