02Jul2020-cover
02Jul2020-cover
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In Warren’s defence

The Financial Times recently wrote an article, asking “has Warren Buffett lost his touch”. Do we agree? Read on to know more.

– Chris Demasi

 

The Financial Times recently wrote an article, asking “has Warren Buffett lost his touch”. The piece is particularly critical of Buffett’s investment performance compared to the broader share market both last year and this year to date. Focus on short term and relative returns by investors can limit the likelihood of achieving strong compound returns over the long term.

According to the FT’s analysis, the return of the stock of Buffett’s company Berkshire Hathaway underperformed the broad S&P500 index of US stocks by around 20% in 2019, and lags by almost that much again this year. For many investors with a similar frame of reference this result would be terrible and enough to abandon a money manager. Over the long run however these same investors would have given up some wonderful returns.

Berkshire Hathaway annual return vs total return of S&P500 (replicated from Financial Times)

Consider the last three decades from 1990 to today. In 19 years, Berkshire stock outperformed the S&P500, which means that it underperformed in the other 11 years – or more than one third of the calendar years analysed. In one year, 1999, the index outdid Berkshire by more than 40%. And from 2003 to 2005 (inclusive) Berkshire underperformed for three consecutive years. I know I don’t seem to be helping Warren’s case but look at the total return over the entire period below.

Stock performance of Berkshire Hathaway vs S&P500

Source: Bloomberg

In the past 30 years a $100,000 investment in the S&P500 index would have turned into $1.6 million – not bad. But the same initial investment in Berkshire stock would have compounded to more than $3 million today. This is the power of long-term investing, but it only accrues to those investors that are prepared to turn away from measuring relative returns over short horizons.

At Montaka, we have one clear goal in everything we do: to maximise the probability of achieving multi-decade compounding our clients’ wealth, alongside our own.

 

 

Chris Demasi is a Portfolio Manager with Montaka Global Investments.
To learn more about Montaka, please call +612 7202 0100.

Our Montaka Global Long Only strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark.


Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.


Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

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Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short