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I find it galling when these Academics say Warren wasn't a great stock picker and that any outperformance was due to leverage from Reinsurance business.

Just look at Apple alone!

One way to sell books and get clicks I guess.

https://www.dailymail.co.uk/yourmoney/banking/arti...

The Daily Mail is the UK version of Fox News. Don't expect top-notch journalism.
Example from the article:
With a mutual fund, you can buy and sell based on dollars, whereas with an ETF (exchange-traded fund) you buy and sell based on market price.

What the heck?

I think most of us here would agree with a lot of what Larry Swedroe really has to say. He is a believer in factors.

A few days ago, someone brought up Berkshire investing in an index. I don't think that will happen, but I've long thought that post Buffett Berkshire could run a large value/profitability factor portfolio and do quite well.

True but he is all over the media saying the same thing about Warren.

I think it's more nuanced than "Buffett was not a great stock-picker".
https://www.cnbc.com/2024/04/13/buffett-really-was...

“Warren Buffett was generally considered the greatest stock picker of all time. And, what we have learned in the academic research is Warren Buffett really was not a great stock picker at all,” Swedroe told CNBC’s “ETF Edge” this week. “What Warren Buffett’s ‘secret sauce’ was, he figured out 50, 60 years before all the academics what these factors were that allowed you to earn excess returns.”

A better way of phrasing it might be: Buffett has been a great investor because he identified these factors before anyone else (and used a bit of leverage).
Not so click-baity, though.

It'll be interesting to see if using these "factors" does lead to excess returns. So far it has not. We are early days into a 50-60 year test.

------------------------------------------------

I didn't know of this Swedroe book:
Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals Hardcover – December 11, 2012

In Think, Act, and Invest Like Warren Buffett, Swedroe provides the foundational knowledge you need to:

Develop a financial plan to help you make rational decisions on a consistent basis
Determine the level of risk that's right for you, and allocate your assets accordingly
Build a low-cost, tax-efficient, globally diversified portfolio
Manage your portfolio by rebalancing periodically to maintain proper risk levels
The beauty of the Buffett approach is its profound simplicity: follow the basics, keep your cool, and have a sense of humor and humility.

Hmmm. That's disappointing.

He's also using the Buffett name to hawk his latest book:
Enrich Your Future: The Keys to Successful Investing 2024

He is quite prolific, which is surprising, given the title of his 1998 book:
The Only Guide To A Winning Investment Strategy You'll Ever Need: Index Funds and Beyond--The Way Smart Money Creates Wealth Today Hardcover – May 1, 1998

lol

"Not so click-baity, though."

I will stand by my view that Swedroe is saying Warren is not a great stock picker to gain attention and sell books. Regardless of the media outlet chosen including a recent podcast with Rick Ferri.

He may be an advocate of a balanced approach with index funds but clearly is pimping Warren's name to gain attention.

same old.

As a poster mentioned here recently, there is a whole cottage industry of "investors" either saying they are devotees of the Buffett strategy or are critical of it.

I will stand by my view that Swedroe is saying Warren is not a great stock picker to gain attention and sell books. Regardless of the media outlet chosen including a recent podcast with Rick Ferri.

I just saw the podcast. I'll listen to it. And I do agree, Swedroe uses the Buffett name like many others to get attention and clicks.

I will stand by my view that Swedroe is saying Warren is not a great stock picker to gain attention and sell books.


Buffett would probably agree not object to the view that he has not achieved such spectacular success by being a 'great stock picker'. He would say you pick companies, not stocks, you buy great companies when they are reasonably priced, and you hold them forever, or at least until their prospects look irredeemable, such as when they acquire a labour union.

Rather than picking great stocks, Buffett would probably say that you pick a few great companies to invest in and wait for capitalism to make you rich, or, if you can't evaluate which companies are great, just buy the index. Buffett has done much better than this by leveraging his iinvestments, using insurance float as uncallable leverage. Although I can't prove it, I am guessing that this leverage has been responsable for most of Buffett's superior returns, not the fact that he picked great stocks. Would you dispute this claim?

The big problem with Berkshire now is that it is so big, there is nothing reasonably priced that he can invest the float in anymore, and recent stock picks (as in, in the last 20 years), have not worked out very well, with one big exception.

dtb

"Although I can't prove it, I am guessing that this leverage has been responsible for most of Buffett's superior returns, not the fact that he picked great stocks. Would you dispute this claim?"

I think the success of the Apple pick by itself disputes this claim

Sure we could debate where the $30b of so came from to by the position but that doesn't take away from the guts required to go in that deep.

Although I can't prove it, I am guessing that this leverage has been responsable for most of Buffett's superior returns, not the fact that he picked great stocks. Would you dispute this claim?

Yes. Because Warren's most spectacular returns were long ago when he was the "cigar-butt investing guy", the brillant stock picker, something that works less and less as bigger you become, so that he simply at some point had no other choice than with help from Charlie to give that up and to become the "Buy great companies at reasonable prices" guy.

Confirmation that giving up his old and super-successful style was only caused by ever increasing size: Some years ago he said something to the tune of "If I had just 1 Million dollars I am convinced to (again) have 30%-50% yearly returns". That's not possible by picking great companies and holding them forever, but only by picking stocks and after getting some last puffs out of them which only you saw and nobody else, to sell them and pick the next ones.

I am guessing that this leverage has been responsible for most of Buffett's superior returns, not the fact that he picked great stocks. Would you dispute this claim?"

===

I think the success of the Apple pick by itself disputes this claim

Sure we could debate where the $30b of so came from to by the position but that doesn't take away from the guts required to go in that deep.


Someone else may point out a way of teasing out how much of Buffett's success comes from the stock picks and how much comes from the safe leverage which his conglomerate has provided - I can't think of a way of doing it right now.

But the success of one stock pick does not really clinch the argument. Looking at the common equity positions, apart from Apple, the big stakes have not really done much lately: I'm thinking of WFC/BAC, Amex, Coca-Cola and KraftHeinz, all big stakes that have done nothing much for 20 years. Moody's has done well, but unfortunately Buffett sold most of it before its big run up after 2018. I would venture to guess that he has underperformed the index with the 'Everything but Apple' part of his portfolio, and that is not counting the big strikeout with the airlines.

And what about the big Kahuna, Apple itself? Buffett started buying in Q1 of 2016, the first 40 million of what is now about 930m shares, with the big purchases coming in Q4 of 2016, Q1 and Q4 of 2017 and Q1 of 2018. Just for the sake of the argument and to simplify things, let's look at how Apple has done since midway thru 2016, compared to alternative moaty supercap stocks like Microsoft, Amazon, Google and Facebook that he might have bought, or even compared to the S&P.

Apple 377%
Microsoft 514%
Amazon 264%
Google 254%
Facebook 151%
S&P 104%

Ok, great, so Apple has worked out quite well, but Microsoft would have done considerably better, and Google and Amazon would have done almost as well. We will see how Apple holds up going forward; I think it is the most vulnerable of all these, but time will tell.

And then there are the big acquisitions: BNSF, Precision CastParts, and Pilot and MidAmerican Energy, now BH Energy. BNSF has done well but not brilliantly. PCP has been terrible, with Berkshire having already written down $10b of the $32b price tag, bought in 2016, the same year as Apple. We will see how much of Pilot has to be written down, but I am not optimistic. BHE will probably need a big write down as well, as litigation costs and difficult regulators have cut into what I used to think was an exception to the general rule of bad performance.

All told, results have been mediocre in the last 25 years, I think, since the GenRe acquisition. Berkshire has still done remarkably well, roughly keeping up with the S&P, probably because it has avoided really big catastrophes, and because the Apple success has pulled up results a lot, and because of LEVERAGE.

So I can't prove it, but I am sticking with my hypothesis that ok results with good leverage have been the key to success, at least for the last 25 years.

Regards, DTB

“Warren's most spectacular returns were long ago when he was the "cigar-butt investing guy", the brillant stock picker…”

Agree, between 1965 and year end 1998 (prior to a huge increase in adding wholly owned businesses) BRK CAGR market returns were 28.7% vs. 12.1% for the S&P (Source 2023 Semper Augustus letter, p.90). No doubt in my mind he has proven a brilliant stock picker, beyond the use of float/leverage. Agree, the Apple trade is the single greatest ever made and he was 86yo when he swung at that fat pitch and knocked the cover off the ball.

Flying up to Omaha with 40K other yahoos for Warren’s celebration, expand my brain, hang with some friends and enjoy some good steak and spirits. Really looking forward to the Charlie tributes, Kleenex in hand. Let’s enjoy these moments!

All told, results have been mediocre in the last 25 years, I think, since the GenRe acquisition. Berkshire has still done remarkably well, roughly keeping up with the S&P, probably because it has avoided really big catastrophes, and because the Apple success has pulled up results a lot, and because of LEVERAGE.
So I can't prove it, but I am sticking with my hypothesis that ok results with good leverage have been the key to success, at least for the last 25 years.

The quality that many people miss from Mr Buffett's stock picking skill is not that that the companies he picks do amazingly better than the market, the thing that so many people try to look for, but rather that he tends not to put big money into things that go wrong. He has never had a realized loss of 1% of any portfolio he has managed.

It's not a perfect comparison, because there is no pre-known holding period for Berkshire's investments, but just for comparison, since 1997 a random S&P 500 company held for 3 years has a 32.5% chance of losing money if held for 3 years (including dividends and before tax), and the average loss of those positions is -34.5%. (the average winner is up 68.3%).

People usually focus on huge winners. But they aren't really needed. It's amazing how much better one's portfolio does if one merely skips a significant fraction of the big losers.

Rule #1 works, if you can manage it.

Jim

Berkshire has still done remarkably well, roughly keeping up with the S&P, probably because it has avoided really big catastrophes, and because the Apple success has pulled up results a lot, and because of LEVERAGE.
So I can't prove it, but I am sticking with my hypothesis that ok results with good leverage have been the key to success, at least for the last 25 years.
===
The quality that many people miss from Mr Buffett's stock picking skill is not that that the companies he picks do amazingly better than the market, the thing that so many people try to look for, but rather that he tends not to put big money into things that go wrong. He has never had a realized loss of 1% of any portfolio he has managed.


This is a very important point - it's one of the 3 reasons I posited for Buffett's success, and one of the (many) reasons my investing has not done as well as his.

There are a couple of exceptions to Buffett's 'no 1% loss' rule. One is that Buffett wrote off $10b of the $32b PCP acquisition. In Q3 2015, when the deal was made, Berkshire's market cap was $354b, so that was a 3% writedown. Buffett makes his rule easier to meet because he never sells his subsidiaries, so technically, we could say they can never end up being realized losses, but to all intents and purposes, this is a permanent loss of 3%, well over the 1% bar.

What about Dexter Shoe? It was bought for $433m in 1993, when Berkshire was worth No wonder Buffett calls this acquisition his "most gruesome mistake". He says he gave away 1.6% of Berkshire for a business that turned out to be, in his words, "a worthless business," and even said that "As a financial disaster, this one deserves a spot in the Guinness Book of World Records."

Uncle Warren was exaggerating. It may have been his worst investment (before Precision Castparts, at least), but neither will get him a spot in the record book of blunders unless he significantly ups his game.

dtb

Buffett's Alpha, November 1, 2013
"We document how Buffett’s outstanding performance is the best among all stocks and mutual funds that have existed for at least 30 years... In essence, we find that the secret to Buffett’s success is his preference for cheap, safe, high-quality stocks combined with his consistent use of leverage to magnify returns while surviving the inevitable large absolute and relative drawdowns this entails."
https://www.aqr.com/Insights/Research/Journal-Arti...

So I can't prove it, but I am sticking with my hypothesis that ok results with good leverage have been the key to success, at least for the last 25 years.

Dad taught me - actions speak. So I don't argue with your observations. I would only add that Gen Re was a huge mistake. The stock Buffett issued has performed much, much better than the commodity insurance company he purchased, (And don't argue that the fixed income investments received funded additional acquisitions. They didn't. BRK never had to draw on them to make the acquisitions he did. The balance sheet - and his own words - say it was a huge mistake.)

But, if so, why are people so concerned about Berkshire after his passing?

I would only add that Gen Re was a huge mistake. The stock Buffett issued has performed much, much better than the commodity insurance company he purchased, (And don't argue that the fixed income investments received funded additional acquisitions. They didn't. BRK never had to draw on them to make the acquisitions he did. The balance sheet - and his own words - say it was a huge mistake.)

But, if so, why are people so concerned about Berkshire after his passing?


Bloomstram makes a pretty convincing argument that GenRe was not a mistake, no matter what Buffett says about it.

No matter, if it was a mistake, then you might say there have been no great buys for 30 years, not 25, with the notable exceptions of BNSF and Apple (am I missing any?) Buffett WAS a great stock picker, and probably still is, but this has not been of much use to Berkshire shareholders for the laast 25-30 years of high valuations and a shrinking set of stocks that could move the needle, as Berkshire gets bigger and bigger.

So conclusion from this line of thinking is that whether or not Buffett is still a great stock picker, in the traditional sense, is of secondary importance. What is important is that he is great because he has set up a safe, reliable company that makes investments that are great because almost none of them lose much money. He has also benefited from safe leverage from the insurance companies' float, on top of safe leverage from future taxes on unrealized capital gains, effectively using the US Finance Department's money to the benefit of Berkshire shareholders. And he runs an honest company that keeps costs low (including his own pay) so that these safe leveraged investments provide maximum benefit to shareholders. And there is the occasional great investment like Apple (great because the returns have been great, and also because he smartly made it a BIG investment. So occasional great stock picking is a bonus, unless you avoiding losers and holding on to winners counts as great stock picking.

There are some concerns about Buffett's eventual passing not because we need the stock picker, but because we worry that the great company he has set up might be changed - maybe successors will sell the big safe slowly growing investments, or maybe they will be less successful at avoiding big losses. I am not too worried about this but maybe other investors are.

DTB

GenRe was NOT a mistake. It was genius. Swapped out of over priced KO and G with ZERO tax hit. Got massive float/bonds-cash at peak of equities.

And what STOCK is WEB buying now? His own stock!

Over $1B at $407/B share in Q1 and the stock is $396 now. Cheapest guy on the planet that is ridiculously price sensitive. Pls do not tell me about elevated P/B

Just my opinion, but I don't think Buffet has done much for the last 10 years. I think his employees have. People's cognitive skills decline as they age, and I don't think he has the skills he once did.

Would that we could say the same about MI.

Would that we could say the same about MI.

That we have aged and cognitively declined?

"People's cognitive skills decline as they age, and I don't think he has the skills he once did."

Except that Charlie Munger felt that Buffett is smarter and sharper than ever before. I can't find the exact quote, but maybe someone will.

Except that Charlie Munger felt that Buffett is smarter and sharper than ever before. I can't find the exact quote, but maybe someone will.

Maybe that is true, but he is the rare exception.

The big problem with Berkshire now is that it is so big, there is nothing reasonably priced that he can invest the float in anymore, and recent stock picks (as in, in the last 20 years), have not worked out very well, with one big exception.

Yeah, we talk about Berkshire's use of leverage via float - below is the ratio of cash + fixed income to float from 2010 to 2013:

Cash+Fixed/Float
105%
92%
100%
94%
101%
99%
102%
109%
105%
111%
113%
109%
92%
111%

With hindsight, it seems they could have used some of that cash more productively.

But then again, I'm happy with my results owning Berkshire. I'm stood at my home office desk right now, but I ain't workin'.

Be interesting to see that cash number on Saturday. What do y'all think? $170bn?

Yeah, we talk about Berkshire's use of leverage via float - below is the ratio of cash + fixed income to float from 2010 to 2013:

Cash+Fixed/Float
105%
92%
100%
94%
101%
99%
102%
109%
105%
111%
113%
109%
92%
111%

With hindsight, it seems they could have used some of that cash more productively.


Probably you mean 2010 to 2023?

If so, on the positive side, rates are a lot better for us today than before. From 2009 to 2022, with the exception of 3 years of moderate Treasury yields, we had rates close to zero, say 0.1% on average, with inflation averaging about 2%. 2017 to 2020 wasn't much better, with short-term treasury rates averaging about 1.2%. So in other words, that $66b growing to $170b cash pile was actually losing value, while Buffett waited for an elephant that never showed up.

Now, we have $170b presumably earning about 5.4% (the 1-month or 3-month treasury yield), minus say 15% in tax, so let's say 4.6%, against a backdrop of 3.5% inflation. At least it's not shrinking.

But yes, if half of that cash had been put in an index fund, starting in 2010 when there was $66b of float, it would be up 6 times (in nominal terms) rather than being roughly flat. That's a pretty big missed opportunity.

As it stands, 4.5% on $170b in float invested in short-term treasuries generates $7.6b in net income, no longer insignificant compared to the $37b in operating earnings last year. Yes, Jim would rightly nuance this rosy view by saying that 3.5% inflation takes most of those gains back away, but the present annual 1.1% real gain is still a lot better than the annual 2% real loss we had to live with for the previous last 13 years.

dtb

rates are a lot better for us today than before.

For "us"? You still have skin in the game? I was under the impression you shortly ago sold all Berkshire and would be just a little watching from the sidelines from here on?

For "us"? You still have skin in the game? I was under the impression you shortly ago sold all Berkshire


You are right, I have no current position, but I have been a shareholder for so long, and am still hoping to be one again, so I have emotional skin in the game and find it more naturally to say 'we' rather than 'you' or 'them' or 'it'.


dtb

I have been a shareholder for so long, and am still hoping to be one again, so I have emotional skin in the game

When I just recently sold Google and Paypal I kept 1 share each. Maybe you should buy one share BRK- (no matter what the ending letter is :) to keep the emotional involvement. I always appreciate your posts and would hate if you'd slowly lose your connection to Berkshire (and "us").

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