Buffett’s Philosophy Still Speaks Volumes

Warren Buffett is sticking with his value investing philosophy despite the rally cry among some that, this time, the strategy is “dead.” This according to an article in Bloomberg.

While the Oracle of Omaha has been vocal in defending his philosophy during its previous bouts, the article reports that this time he has been “uncharacteristically missing from the chatter, but that doesn’t mean his views are any less clear, or any less worth paying attention to.”

The article notes the following factors:

  • Buffett gauge: Buffet’s preferred measure of the market—market cap-to-GDP– shows that U.S. stocks are more expensive now than prior to the two previous market downturns. “So it’s probably safe to say that Buffett doesn’t love the lofty level of the stock market,” the article notes.
  • Cash bloat: The article notes that Berkshire’s cash balances represent more than half of its portfolio of public companies, adding that “judging by the record $122 billion of cash he’s hoarding at Berkshire Hathaway Inc., it’s also safe to assume he doesn’t expect the market to remain elevated forever.”
  • Huge bet on banks: Berkshire’s holdings suggests “his faith in value investing is unshaken despite a miserable decade of underperformance for the strategy,” the article reports, adding that about 45% of the firm’s equity portfolio is allocated to the financial sector and eight of its top 12 holdings are financial stocks—”a deeply contrarian bet.”
  • Technology: While Buffett’s uncharacteristic “pivot to technology stocks in recent years” has drawn attention, the article argues that it has been “mostly a value play,” explaining that when he began buying Apple in early 2016 it was a “bona fide value stock.” But the fact that he isn’t using his hefty cash balances to amass more tech holdings today “speaks volumes.”

The article concludes, “There’s little indication, in other words, that Buffett is wavering from his long-standing investing principles.”