Warren Buffet Portfolio has underperformed for the last 13 years. What it means for the Current Market?

 

6^th April 2021

Warren Buffet Portfolio has underperformed for the last 13 years. What it means for the Current Market?

Dear Fellow Travellers,

Namaste! There are talks of the market that it is in bubble situations and if you look at P/e and other popular indicators in the current market compared to the past fall – they tally. We are looking at another indicator – our own way – to see if the market is in a bubble or not? We have taken the Buffett return each year and S&P 500 return each year from 2008 to 2020 to look back and come to the present.

Buffett Return since 2008: -

As per the given details in the Berkshire letter of 2021, they have generated a total return of 113.1% between 2008 to 2020. It means 8.7% per annum. S&P 500 has given 149.50% between the same period. It means 11.5%. Buffett is down by 2.8% per annum or 36.6% in 13 years period.

What it means for Normal investors?

 

1.   Will you be in the market, if your portfolio is not moving up for 13 years at a stretch?

 

My 30 years of experience with normal investors shows that they don’t have patience and strategic thinking. Many self-proclaimed long-term investors who claim to be for a long-term investment tenure runs away in the first month or first year only. They want to see their shares prices moving up and up only. They can’t tolerate the downside.

Our suggestions to our clients are to be in the market at least for 3 years. Traditionally, it is a saying in India that you need 1000 days to succeed in any business. 1000 days is 3 years if you remove the holidays. Management says you need to be in the new field for at least 10000 hours to become an expert in any area. 10 hours per day for 1000 hours is 10000 hours. They are also talking about our traditional time only.

The problem with the small investors is that they lack patience, vision, and strategic thinking.

2.   Why Buffett Portfolio did not move?

I have observed normal investors that when the index moves up and their stocks do not move up, they assume they have bought WRONG stocks!! Their broker/consultants or fund managers don’t know anything about the stock market!!

Look at BSE SENSEX or NIFTY 50 companies’ prices in 2018 January and January 2021. 3 years have passed. Both the index has moved up but many companies are still below their January 2018 prices.

It means the market moves up in ROTATION or if I put it management language – they move as per product life cycle wise. Reliance did not move up from 2009 to 2020. But from March 2020 it gave more than 100% return. So, those who were having patience made the money.

Buffett Portfolio and Market Bubble: -

Buffett has all the traditional companies, consumer companies in his portfolio. They have not moved up. Like the 2000 dot com bubble – this time also most tech companies are moving up one side. He doesn’t hold them or invest in them as per his investing principles. They reshuffle and rebalance the S&P 500 regularly by including performing companies and removing non-performing companies, the way they are doing it in India. Buffett has a vision for his businesses and he is convinced of the future of his companies. He also knows that cycle will turn up any time without giving any notice. So, why not hold them?

Since Buffett has 70 businesses and they have not performed in the market teji so far in the USA – it means – the new liquidity which is being poured by the BIDEN government will go to these stocks first before it becomes time to burst. This is one way to look at the market.

In 1999-2000, the market fell off due to DOTCOM companies only. When these companies fell – all other companies also fell and Buffett and other investors who did not buy IT stocks also suffered. So, any conclusion can be misleading for the market.

What is the ideal way according to our experience?

Look at the business performance of the company in a given period. Find out the reason for under or over performance. If you think that underperformance will be taken care of in the future and other factors are okay – then it makes sense to add them to the lower levels or hold for a little longer time. You need to go company-wise rather than portfolio-wise.

The main factor to keep in your mind while you do the above exercise is to be true to your investment objective.

What NEXT?

The market is King. It doesn’t care if you are Buffett or an ordinary investor. Respect the market and prepare your investment strategy. Respect your judgment and your investment objective also!!

Have a Happy Investing.

Follow me on Twitter @hiteshmparikh and join me on WhatsApp on +91 986 942 5399.

 

Live With Passion…. Invest With Passion.

 

 

Hitesh Parikh