You can't teach an old dog new tricks, not even Warren Buffett, the top dog in capital markets since 1964. And the high tech world is changing faster than ever.
Warren Buffett has an unparalleled record of investing in winning businesses for epic returns. What does it say about the environment for capital markets, that the Oracle of Omaha’s last decade was a lost decade?
From 1964 to 2019, Berkshire Hathaway’s (NYSE:BRK.A/B) market value grew 2,744,062%. A hundred dollars in the care of Buffett became $2.7 million in a little over a half-century. Over the same period, the S&P 500 Index gained a comparatively paltry 19,784%. That’s why he’s called the Oracle. But Berkshire has underperformed the S&P 500 over the 2010s.
Berkshire is woefully underperforming as the Internet reaches scale, but Buffett keeps doubling down on his old strategy.
You can’t teach an old dog new tricks, even if that old dog has been top dog since Johnson was president. Berkshire’s pitiful performance has been a source of great consternation to investors.
Earlier in the year, longtime Berkshire shareholder Bill Smead lashed out at the holding company’s stagnation:
Berkshire BRK.A, +0.75% needs an activist. We don’t own the stock for capital preservation. We own the stock to create wealth.
Instead, Buffett is doubling down on his increasingly defunct strategy. He appears to have repurchased $5 billion in Berkshire stock. He bought a pipeline for $10 billion. He piled $800 million more into Bank of America (just in time to own a more significant piece of a massive loan default crisis).
It looks increasingly unlikely that Warren Buffett and his value investing students at Berkshire will be the ones to deliver 2.7 million percent returns over the next half-century. So who will?
Maybe Founders Fund head Peter Thiel. The PayPal and Palantir founder is a growth investor with a heavy emphasis on tech stocks. He was an early investor in Facebook, SpaceX, Airbnb, and Spotify.
In his 2014 book, “Zero to One,” Thiel explained why it’s futile to copy a great businessman like Warren Buffett, or any great businessperson:
The next Bill Gates will not start an operating system. The next Larry Page won’t start a search engine. The next Mark Zuckerberg won’t start a social network company. If you are copying these people, you are not learning from them.
Likewise, the next Warren Buffett and market oracle won’t buy and hold value shares in manufacturing, banking, and insurance. Because we live in a fundamentally different world from 1965, the Berkshire business paradigm is growing obsolete.
That doesn’t mean Buffett’s principles are outdated. Most of them are timeless, but successful investors in the digital era will apply them differently.
Peter Thiel is famous in Silicon Valley and capital markets for his inveterate contrarianism. He warned in 2014 that “risky” growth stocks will be safe when a government “bond bubble” pops. Whereas traditionally “safe” investments in utilities will be at risk. (He called the steady cashflows of utilities “government bonds in drag.”) Warren Buffett loves these kinds of investments. Since Thiel made these remarks, markets have proven him right.
Buffet himself might agree that he shouldn’t be copied. Instead, investors should take his principles to heart and apply them to a changing world. In 2017, Buffett said he doesn’t want to be remembered as an investor. He wants to be remembered as a good teacher.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:09 PM