Veteran trader Bill Ackman sold his hedge fund’s stake in Warren Buffett’s Berkshire Hathaway. The move comes as Ackman’s Pershing Square is up over 20% for the year, while Berkshire Hathaway posted a loss of $50 billion during Q1 2020.
And with Warren Buffett’s last three big investments costing him some $7 billion, Ackman’s move may be another sign that Buffett is past his sell-by date.
Speaking during a call on Wednesday, Bill Ackman told investors that Pershing Square had dumped its entire stake in Berkshire Hathaway.
Pershing’s investment in Warren Buffett’s holding company accounted for 10.7% of its portfolio. But Ackman told investors that Berkshire Hathaway’s larger size was causing it difficulties in such a challenging environment.
The one advantage we have over Berkshire is just relative scale. Berkshire has the problem, if you will, of deploying $130 billion of capital.
Conversely, Ackman claimed that Pershing’s relative smallness allowed it to move quickly in response to market movements.
So, our view was we should take advantage of that nimbleness, preserve some extra liquidity in the event that prices get more attractive again.
The implication here is that it’s better to preserve liquidity than maintain a stake in Berkshire Hathaway.
In other words, Warren Buffett and his holding company are liabilities. Or at best, they’re a missed opportunity to invest in some underpriced firms whose stock could rise.
Berkshire Hathaway and Warren Buffett are having a terrible 2020. At the beginning of May, Berkshire posted a massive $50 billion loss for the first quarter. This resulted primarily from $54.52 billion of losses from investments – mostly stocks.
Looking at Berkshire Hathaway’s Class A and Class B shares, both are performing worse than the Dow and the S&P 500.
The Dow is down roughly 10% year to date, while the S&P 500 has shed around 6%. By contrast, Berkshire stock has suffered an 18% drawdown.
This means you’d have been better off simply buying the S&P 500 than following Warren Buffett and Berkshire Hathaway.
The picture for Buffett looks worse when compared to the performance of Pershing Square. As Ackman claimed in his conference call yesterday, Pershing’s hedge funds are up between 22% and 27% this year.
To a large extent, this rise comes from Ackman placing a $27 million hedge against the wider stock market, which paid off to the tune of $2.6 billion. This was around the time news emerged from China of authorities in Hubei and Wuhan shutting down everything.
This is a case where you could just look East and see what was happening in China … As we thought about that, we were unfortunately very confident that … it would not be very long before this was on our shores.
Ackman’s Pershing Square had the simple common sense to see what was happening elsewhere in the world and move quickly. The same can’t be said for Warren Buffett and Berkshire Hathaway.
How could one of the most (supposedly) visionary investors in the world not see this one coming? It certainly wasn’t a black swan.
On top of this, Buffett’s last three big investments – Heinz, Occidental Petroleum, and U.S. airline stocks – have cost him $7 billion.
Is he just getting old? Or is he simply out of step? Either way, maybe it’s time we all gave up on him.
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.