Warren Buffet is celebrated as one of the greatest investors of all time. His company Berkshire Hathaway’s stock has earned investors astronomical returns over the years. However I always thought that investors’ and media’s obsession with his greatness is overblown. A recent article I came across confirms my belief. According to the piece, Warren Buffet is no longer a genius and is just like so many other active managers out there whose glory days from initial few years of awesome performance are long gone.
Berkshire Hathaway has never paid a dividend and its Class A stock closed at $525,425 yesterday. The YTD return is about 12%. From the article:
Berkshire Hathaway has not added any value against the S&P500 index since 2002. Its out-performance fade curve is the same as other value-adding share funds in Australia and other markets.
Tracking performance decay over time
Here is my chart for Berkshire Hathaway since May 1965 when Buffett took control.
Click to enlarge
The red line is the Berkshire’s share price. Since 1965, the company has paid no dividends and has reinvested all earnings, so the share price is essentially the ‘Total Return’ series. The shares have not split over the period and the price of BRK Class A shares has grown from $12.37 to $546,725 per share at the end of August 2023.
The blue line is the S&P500 total return index. This is the most appropriate benchmark because Berkshire’s investments have always been US companies (listed and unlisted), with few exceptions (notably Chinese car maker BYD).
The black line shows annualised rolling 10-year excess returns above the benchmark. This is our main historical measure for long-term investors.
The orange dotted line is the annualised rolling 3-year excess returns above the benchmark. This is a good way to see performance through different cycles and market conditions.
The author went on to show that Berkshire’s performance has been poor in the past two decades. The stock has earned average or no excess returns over the S&P Total Returns in that time period. Another excerpt from the piece:
We see a clearer picture of performance by looking at returns per decade:
In the 1990s, it added almost no value as Buffett lagged the market by deliberately avoiding the crazy ‘dot-com’ boom. This earned him a lot of derision at the time but he was vindicated when he added value in the 2000s by avoiding the ‘tech wreck’. However, virtually no value was added in the 2010s and 2020s.
Gold is an important asset to own in a well diversified portfolio. Unlike fiat currencies gold is considered as a store of value that will stand the test of time. For millennia humans have always been attracted to the yellow metal for its purity and value. In modern times, though equities have become popular the world over gold is still an asset that is coveted by investors during good times and bad times. During periods of economic contractions or volatility in other markets, gold offers a refuge to protect one’s assets. With that brief intro, let’s take a quick look at ten things about gold.
1.Gold is traded 24 hours a day worldwide under the ticker XAU.
2.The London Bullion Market (LBMA) is considered as the industry benchmark, with the spot price set twice daily at 10:30am and 3:00pm GMT in US dollars.
3.Continuous trading at all hours of the day happens on the OTC markets and the futures markets (e.g.. CME of the US, LME of the UK, etc.).
4.Here is an excerpt from the Market Index site on what drives the price of gold:
1. Central Banks Net purchases of gold by central banks can affect the price.
2. U. S Dollar Value When the USD is strong, people are more optimistic and prefer to trade in USDs, pushing the price of gold down.
3. Economic Uncertainty Gold is seen as a “safe haven” to store wealth during volatile and uncertain times.
4. Worldwide Jewellery Demand Around half of all gold demand is driven by jewellery with China, India and the US being primary buyers.
5. The gold “spot price” refers to the current market price in US dollars for a troy ounce (31.1g) of 99.99% pure gold. Most websites list this price. For instance, as per Kitco the spot price gold on Oct 13, 2023 is $1,920.90.
6.Gold is measured in “troy ounces” instead of the regular ounces. The difference in measurement is:
1 troy ounce = 31.1035g 32.1507 troy ounces=1kg
One regular ounce is 28.3495g.
7.Over the long-term the price of gold has gone considerably as shown in the chart below:
8. London-based The World Gold Council is the organization representing the global gold industry.
9. The largest gold Exchange Traded Trust is the SPDR Gold Shares (GLD). It holds the assets in physical gold. As of Oct 13, 2023 it held 862 Tonnes of gold. The asset base of this trust is over $51.0 billion. Gold investors can invest in this trust or in gold mining company stocks or via other products.
Mexican airport operators have been one of the best performers until recently. On Oct 5th however they plunged dramatically when the Mexican government abruptly announced changes to the concession agreements which would reduce their revenues. The companies themselves have not released the specific details on how this change would impact them. Investors were not taking any chances and dumped the stocks leading to heavy losses. Grupo Aeroportuario del Centro Norte SAB de CV(OMAB) declined over 25% on the local market. Peers Grupo Aeroportuario del Pacifico SAB de CV (PAC) and Grupo Aeroportuario del Sureste SAB de CV (ASR) also fell heavily. The ADRs on these companies plunged even more than the local market. The YTD return chart shows the fall on Thursday:
Though the stocks recovered slightly on Friday, it remains to be seen how they fare the rest of the year and beyond. Any way one looks at this development, it is bad news for the companies. Abrupt changes in state policies are one of the risks investors face in emerging markets. This is a classic example.
Referenced stocks:
1.Grupo Aeroportuario del Centro Norte SAB de CV(OMAB)
52-Week High: $100.21
52-Week Low: $50.23
Closing Price on 10/6/23: $65.14
2.Grupo Aeroportuario del Pacifico SAB de CV (PAC)
Iron ore is one of the most important minerals in the world. Recently I learned that Australia ranks as the number one country for iron ore resources ahead of Brazil and Russia. According to one estimate, Australia has 29% of the world’s economic resource of iron followed and Brazil and Russia have 18% and 14% respectively. The top destination for Australian iron ore exports is China. So if the Chinese economy is in contraction mode Australian exports would be negatively impacted.
The following map shows where the iron ore deposits lie in the country. Most of the deposits are located in Western Australia:
