“Some longtime Buffett watchers argue that it is time to fundamentally rethink Berkshire’s mix of businesses and investments” due to the conglomerate’s worst performance versus the S&P 500 in a decade. This according to a recent Financial Times article.
The article cites comments from CFRA Research analyst Cathy Seifert, who says that Berkshire’s $3 billion write-down of Kraft Heinz last year coupled with Mr. Buffett’s $10 billion investment in oil producer Occidental Petroleum—that is no longer paying a cash dividend—have “tarnished Berkshire’s reputation for deal making.” She described the Occidental deal as an “unmitigated disaster.”
Adding to the concern is Buffett’s move at the beginning of the year to increase holdings in America’s largest airlines before “selling them at the peak of the coronavirus disruptions in April, crystalizing a loss.” Besides the investment missteps, the article notes that it has been over four years since Berkshire “clinched its last major acquisition” —the purchase of Precision Castparts.
Berkshire’s portfolio is also “light on tech” and heavy on financials and industrials, which underscores what the article describes as a “broader concern regarding Berkshire’s asset allocation and its ability to keep up with the US stock market, let alone outperform.” It notes that bank shares have been negatively impacted by an expectation for an uptick in loan losses and profits that have been depressed by the fall in interest rates, “which in turn will weigh on the returns of Berkshire’s more-than-$100 billion Treasuries portfolio.”
According to Christopher Rossbach, CIO of asset manager J Stern & Co., “If Berkshire is to have the prospects of generating the value it has in the past, it has to adapt by buying these companies that will generate significant value over the next 25 years,” adding that Buffett has kept many tech companies in a “box that Warren has on his desk that says ‘Too hard.’ What will it take for them to take these stocks out of the box?”
Thomas Russo of Gardner Russo & Gardner (which owns Berkshire stock) weighs in: “Berkshire Hathaway remains designed to reward investors over time but not on time.”