Berkshire Hathaway lost nearly $50 billion this year as technology companies outperformed. Warren Buffett should consider changing strategies.
Warren Buffett, the greatest value investor, has lost tens of billions of dollars amid the global pandemic. He needs to make drastic changes in his investing strategy, or he’ll likely lose more money in the coming months.
While investing heavily in intrinsically valuable companies has made Warren Buffett a fortune, the pandemic is telling him that it may be time to rethink that strategy.
In the first quarter, Buffett’s Berkshire Hathaway (NYSE: BRK.A) lost nearly $50 billion of its clients’ money as the company’s holdings plummeted in value. A quick look at Berkshire’s portfolio reveals it is heavily invested in consumer brands and financials.
Buffett sees his investment in Apple as a consumer play and not as an investment in a tech company. Other than the iPhone maker, the rest of Berkshire’s top investments have been less than stellar this year.
Bank of America (NYSE:BAC) is down over 25% year-to-date. Coca Cola (NYSE:KO) lost 15%, American Express (NYSE:AXP) shed over 20%, and Well Fargo (NYSE:WFC) bled nearly 55% over the same stretch.
Perhaps, it would be wise if Buffett significantly trimmed his holdings in these four companies. The move would free up capital and enable Berkshire to invest in names that have continued to do well in this time of crisis.
It won’t come as a surprise if news breaks out that Buffett did indeed cut his losses. Last month, the Oracle of Omaha dumped all of his holdings in the airline industry.
Buffett says he only invests in companies he understands, which is why he has generally avoided the tech industry. But with the threat of the pandemic still lingering, people will likely rely on tech companies now more than ever.
The tech-heavy Nasdaq Composite Index has outperformed other benchmark indices such as the S&P 500 and the Dow Jones Industrial Average this year. Firms such as Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL), and Netflix (NASDAQ:NFLX) are either printing or closing in on all-time highs.
These names have strong upside potential as more people count on tech firms to provide goods and services during the crisis.
Even if a vaccine is developed and deployed in the next 12 months, the pandemic has changed the way people access goods and services. Consumers will likely come to appreciate the convenience brought by Amazon. Businesses will be more dependent on Microsoft’s cloud services. Users would retain their Netflix subscriptions as theaters go out of business.
If Warren Buffett refuses to invest in tech, which is the future, then a $50 billion loss is just the beginning. He needs to rethink his investment strategy or consider retiring while he is ahead.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author does not own any shares of the above-mentioned companies.