Rumour has it that the legendary value investor Warren Buffett will soon hang his hat up.
Warren Buffett is expected to retire from Berkshire Hathaway with Matthew Rose, executive chairman of Fort Worth-based BNSF Railway C tipped to succeed the famous value investor.
Perhaps Warren Buffett’s imminent departure underscores the mood of current value investors, their repugnance for this stock bull market by default which bears little or no correlation with corporate earnings or fundamentals. But if the fundamentals have become irrelevant then so too has value investing.
At Berkshire’s annual meeting in May, Buffett admitted that he “blew it” by failing to invest early in Google
So has Warren Buffett value investing lost its mojo?
Berkshire Hathaway fund did miss the boat on investing in technology companies.
At Berkshire’s annual meeting in May, Buffett admitted that he “blew it” by failing to invest early in Google.
Whatsmore, when Bitcoin was trading around a few thousand dollars the famous value investor said the following about cryptocurrency:
“I am not interested at all,” said Warren Buffett, “Bitcoin is a real bubble”, he added.
Bitcoin is “a very effective way of transmitting money, and you can do it anonymously and all that.” Warren Buffett added, “A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money?”
The combined market capitalization of the FANGs is $1.7 trillion, about the same size as the combined GDP of Switzerland, the Netherlands, and Venezuela, or half the size of Germany’s GDP
How could a business magnate with a personal net worth of 84.2 billion USD get it so wrong?
So Warren Buffett value investing has lost its mojo in today’s world of FANGS which represents the most popular and best-performing tech stocks in the market, they make up Facebook, Amazon, Netflix and Google, Alphabet.
If your portfolio consists of FANGS you are sitting on a comfortable profit. FANG stocks have been market leaders so far this year. Facebook, Amazon, Netflix, and Alphabet (NASDAQ: GOOGL) stocks are up about 50%, 32%, 60% and 25%, respectively, to the end of August. This is against the S&P 500’s 16% rise.
The combined market capitalization of the FANGs is $1.7 trillion, about the same size as the combined GDP of Switzerland, the Netherlands, and Venezuela, or half the size of Germany’s GDP.
With respect to FANGS, Warren Buffett value investing has lost its mojo because its investment philosophy would have steered investors away.
Facebook (a glorified electronic bulletin board) has a current market capitalization of 525.43B which is more than GE and the US multinational bank JP Morgan
But Facebook (a glorified electronic bulletin board) has a current market capitalization of 525.43B which is more than GE and the US multinational bank JP Morgan.
Moreover, the Amazon era of no profits no problems also supports the view that Warren Buffett value investing has lost its mojo. The online digital retailer (which owns no expensive real estate on the high street and still hasn’t made a profit) has a current market capitalization of 573.71B, nevertheless, Amazon is worth almost twice as much as the world’s largest brick and molter retailer, Walmart.
Whats more how could an investment advisor explain cold sober and straightfaced to a gold investor that their ounce of physical gold is worth approximately eighteen times less than a bit of a digital cash protocol (lines of digital code that nobody knows who created) Bitcoin.
Warren Buffett value investing has lost its mojo because the investment world is floating on a pink champaign bubble.
If history repeats itself then it could all end with investors getting back to value investing.
Today we see a lot of “artificial manipulation” in the market through the central bank’s monetary easing (flooding the market with liquidity)
What is value investing?
Benjamin Graham is regarded by many to be the father of value investing.
Along with David Dodd, he wrote Security Analysis, first published in 1934 which sets out an intellectual framework for value investing. Security Analysis is used as a reference text for serious value investors.
Benjamin Graham definition of Intrinsic value ( an elusive concept) is the core to understanding value investing philosophy.
“In general terms, it is understood to be that value which is justified by the facts e.g. assets, earnings, dividends, definite prospects, as distinct, let’s say from market quotations established by artificial manipulation or distorted by psychological excess”.
Today we see a lot of “artificial manipulation” in the market through the central bank’s monetary easing (flooding the market with liquidity).
Cryptocurrencies, while I would agree has a function and is not a gimmick although has been hijacked by psychological excess-greed.
So in the era of artificial manipulation and psychological excess, Warren Buffett’s value investing has lost its mojo. But it could find it again like it did post dotcom era, remember then profits too were for wimps.
Business plans presented by those in swanky suits with MBA would seduce investors with the potential of getting in early because this one is going to be a major global player. As investor patience broke many realized that the company they held stock in would never break even, let alone be profitable. Then value investing came back in vogue (albeit painfully), investors panicked and the dot-com crash followed.
Moreover, the financial crisis 2008 subprime debt crisis- collateralized debt on brick and molter wrapped in AAA rating from the major credit rating agencies turned out not to be not that secure. Eventually, homebuyers realized that the US housing market was in a bubble.
Warren Buffett value investing did not lose its mojo back then either.