May 3, 2014
I just read this headline from Business Insider; “Warren Buffett Had To Answer Some Tough Questions At Berkshire’s-Hathoway’s Annual Shareholder Meeting”.
Imagining questioning the “Oracle or Omaha” himself about sagging returns for his company Berkshire Hathaway. It could be the worst case of “what have you done for me lately” I have ever seen. Yes the returns of BH have been down relative to the rest of the market. Buffett himself will tell you BH does its best work when the rest of the market is not performing well. The strict disciplined adherence to a system of fundamental analysis will not outgun growth in times of expansion. But some at the BH shareholders meeting had to take exception to underperformance and a couple of other issues related to executive compensation of BH’s core holding Coca-Cola.
Maybe fundamental analysis is not the flavor of the day. Maybe Buffett has lost a step and his aging sidekick Charlie Munger is clearly old, cantankerous and doesn’t give a damn what you think. While BH remains the beacon of light for long term investment of those that believe in the tenants of Benjamin Graham. Distracters are rising in numbers.
I too will take a shot at the philosophy looking forward the next several years with the qualifying statement that the long term returns of Buffett and BH have been fantastic and Buffett is a genius to be revered I offer this. Things are changing fast and there is no looking back.
As I have mentioned in prior post and several places on this page (see “The Shift” position paper and video). I strongly believe the “golden day’s” of U.S. equities are gone and we, as investors need to re-access how we look to invest. BH’s returns were smooth and steady through the slow growth 60’s and 70’s and definitely outperformed the market. Buffett’s ability to spot quality in companies and their management is unquestioned and legendary and I don’t mean to understate his talent or question his record. I would say that he was in the right place at the right time
The rise of the overall stock market from 1982 until now was a wave aided by an expansion of our national debt and the growth of the balance sheet of the Federal Reserve that cannot be maintained going forward.
When I began talking to anyone that would listen a little over a year ago and said that income stocks, real estate and other income producing investments were where to go with your dough I was right on. Tech and special situations may produce some gains in the near term but the long term prospects are not rosy for value investing. The entire world has to deal with ballooning debt, high unemployment rates and price inflation so prospects of a soft landing for our collective economies seem unlikely.
The value is disappearing from utilities and any other income producing asset such as REIT’s and bonds are out of the question beyond two year maturities. So what to do?
You can continue to ride the market momentum for a while; which in spite of looming higher interest rates and flat lined growth seems hell bent on a new high and even higher highs.
But what can you do if you sense that there may be something to the idea that you can’t run for so long without getting tired
How about cash? How about say moving to 50% cash over the next six months to one year? Hum.