'Buffett needs to listen to Buffett again': Investor was wrong to recommend tech-heavy S&P 500, Berkshire Hathaway shareholder says
Warren Buffett recommended the S&P 500 several times at Berkshire Hathaway's shareholder meeting this month. The famed investor effectively advised investors to back the "big tech" companies that make up a large chunk of the index, Tony Scherrer of Smead Capital Management said in a blog post. However, Buffett warned against "gruesome" businesses that grow quickly, require lots of capital, and generate minimal profits in his 2007 shareholder letter. "It looks to us like Buffett needs to listen to Buffett again," Scherrer said. "He is forgetting what gruesome looks like by fawning on the Index and some 'obvious' winners of today." Visit Business Insider's homepage for more stories.
Warren Buffett's advice to invest in the S&P 500 clashes with his past warnings against "gruesome" businesses, Tony Scherrer, director of research and portfolio manager at Smead Capital Management, a Berkshire Hathaway shareholder, said in a company blog post on Tuesday. "I recommend the S&P 500 to people," Buffett said at Berkshire's shareholder meeting this month, according to a transcript on Sentieo, a financial-research site. The famed investor also described the benchmark index as "the best thing" for most people, and argued that telling them to park the majority of their wealth in index funds was "better advice" than most investment advisors offer. Read more: 10 big-money investors each share the single market risk they think traders are overlooking right now However, Scherrer pointed out that five companies account for more than 20% of the S&P 500's weighting: Apple, Amazon, Alphabet, Facebook, and Microsoft. As a result, Buffett effectively endorsed those large technology companies, he said. "He recently emphasized indexing and didn't shy folks away from today's glamour tech stocks which require more and more capital," Scherrer said in the blog post. Gruesome businesses Buffett described "gruesome" companies that investors should avoid in his 2007 shareholder letter. "The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money," he said. Read more: Tens of billions in redemptions, hundreds of billions in losses: Here's a look at how the hedge fund industry hemorrhaged money in March Several of the S&P 500's largest constituents fit some or all of those criteria, Scherrer argued. For example, Netflix's content costs are ballooning, Facebook's customer-acquisition and regulatory expenses are soaring, and Amazon still earns "measly" profits relative to revenue. Therefore, Buffett's recent endorsement of the S&P 500 represents a major, wrongheaded shift away from his guidance 13 years ago, Scherrer said. "It looks to us like Buffett needs to listen to Buffett again," he added. "He is forgetting what gruesome looks like by fawning on the index and some 'obvious' winners of today." Read more: Buy these 14 bank stocks that are jarringly cheap and positioned for extreme moves higher, BTIG saysJoin the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
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Warren Buffett's bet on Barrick Gold isn't as strange as it looks. The miner models itself on Berkshire Hathaway.
Warren Buffett's Berkshire Hathaway made a surprise bet on gold miner Barrick last quarter, undermining the...Warren Buffett's Berkshire Hathaway made a surprise bet on gold miner Barrick last quarter, undermining the billionaire investor's past criticisms of the metal as an investment. However, Berkshire and Barrick have more in common than it appears. Barrick's bosses have emulated Berkshire's culture of trust and partnership and its decentralized structure, and vowed to follow Buffett's advice to think independently and invest astutely. "It is our intention to become one of the few businesses that fulfill Warren Buffett's ideal holding period of forever," Barrick chairman John Thornton said in 2016. Visit Business Insider's homepage for more stories. Warren Buffett's Berkshire Hathaway shocked investors when it revealed a $546 million stake in Barrick Gold last quarter, after Buffett warned against investing in gold for more than two decades. The bet isn't quite as bewildering as it seems. Barrick's bosses have emulated Buffett's management style for years, and modeled their company culture and structure on the famed investor's conglomerate. As a result, the gold miner is probably a better fit for Berkshire's portfolio than its peers. Here are some of the key similarities between the two companies, based on an analysis of company transcripts on Sentieo, a financial-research site: Barrick's late founder and CEO, Peter Munk, said on an analyst call in 2014 that trust within the company was key to its success. He compared his colleagues' bond to the "seamless web of deserved trust" that Buffett's partner, Charlie Munger, has underscored as critical to Berkshire's outperformance. Chairman John Thornton outlined a slew of structural changes in Barrick's 2014 annual report that moved the company closer to the Berkshire model. You can see them below (bold text is what Barrick did, italic is Berkshire's strategy): It expanded its partnership plan to 35 leaders, granting them stock options to incentivize long-term performance. It also vowed to strike fair deals with external partners such as governments and local communities, potentially sacrificing short-term revenue to build relationships and secure future projects. Buffett views Berkshire stockholders as his partners in the company. "Charlie and I are working for our shareholder-partners," he said in his 2018 shareholder letter. Barrick appointed two co-presidents, giving its operations chief and corporate-affairs boss a stake in each other's success. At Berkshire, Buffett works in partnership with Munger, Todd Combs and Ted Weschler co-manage its investment portfolio, and Ajit Jain and Greg Abel split responsibilities for the insurance and non-insurance operations respectively. Barrick decentralized its operations, halving the size of its headquarters and removing management layers between its Toronto headquarters and its mines. Its goal was to minimize bureaucracy and allow the head office to focus on allocating people and money across Barrick's operations. Thornton summed up the shift with a Buffett quote: "Hire well, manage little." Berkshire owns scores of businesses — including Geico, See's Candies, and the BNSF railway — and employs close to 400,000 people worldwide. Yet it only has a couple dozen employees in its headquarters, and Buffett and his team allocate capital across the company. That's not where the similarities end, however. Thornton vowed in Barrick's 2015 annual report that the miner wouldn't succumb to the "institutional imperative" among companies to "mindlessly imitate" their peers, a problem that Buffett identified in 1989. Barrick differentiates itself by aiming to enrich not just its owners but its employees and local communities as well, he said. The chairman also proclaimed his desire for Barrick to be one of the world's best companies at the miner's annual meeting in 2016, adding that he wanted it to be worthy of Buffett's investment. "It is our intention to become one of the few businesses that fulfill Warren Buffett's ideal holding period of forever," he said. Moreover, Thornton invoked Buffett's 1989 warning against plowing excess cash into increasingly subpar projects and acquisitions at an investor day in 2018. He vowed that Barrick would be disciplined in its investments and not fall into the trap. Based on those comments, Barrick shares Berkshire's cultural values of trust and partnership, subscribes to its decentralization model, and heeds Buffett's advice to act independently and spend intelligently. Those similarities undoubtedly factored into Berkshire's decision to invest. Thornton's goal to have Barrick live up to Buffett's standards is now a reality.Join the conversation about this story » NOW WATCH: Why thoroughbred horse semen is the world's most expensive liquid
Warren Buffett slashed his stakes in JPMorgan and Wells Fargo last quarter, a regulatory filing revealed...Warren Buffett slashed his stakes in JPMorgan and Wells Fargo last quarter, a regulatory filing revealed on Friday. The billionaire investor's Berkshire Hathaway conglomerate also took a $560 million position in miner Barrick Gold. Buffett trimmed several other holdings including BNY Mellon, PNC Financial, US Bancorp, and SiriusXM. The portfolio update settled speculation about the almost $13 billion in net stock sales that Berkshire reported last quarter. Visit Business Insider's homepage for more stories. Warren Buffett cut his JPMorgan and Wells Fargo stakes and invested in Barrick Gold last quarter, according to a regulatory filing on Friday. The famed investor and Berkshire Hathaway CEO slashed his company's JPMorgan stake by more than 60% to about 22 million shares, and its Wells Fargo position by more than 25% to about 238 million shares. The sales meant the two holdings — which ranked among Berkshire's 10 largest positions at the end of the first quarter — shrunk in value to about $2.1 billion and $6 billion respectively as of June 30. Buffett and his team also bought about 21 million shares of Barrick Gold, a gold-and-copper miner. The position was valued at about $560 million at the end of the second quarter. The investment is a surprise given Buffett has repeatedly criticized gold as an inferior investment to businesses, farms, and other productive assets. The precious metal is "neither of much use nor procreative," he said in his 2011 shareholder letter. Betting less on banks Berkshire took a knife to several of its financial holdings last quarter. It dumped the rest of its Goldman Sachs stake, after cutting it by more than 80% in the first quarter. It also sold shares of BNY Mellon, PNC Financial, US Bancorp, Visa, and Mastercard. Moreover, Berkshire lowered its SiriusXM stake and exited its position in Burger King-owner Restaurant Brands. It also dumped its common shares of Occidental Petroleum, although it continues to hold preferred stock in the cash-strapped oil producer. Buffett's company only bolstered a handful of positions such as Kroger, Suncor Energy, and Store Capital. Overall, Berkshire's stock portfolio grew in value by 15% to about $202 billion last quarter. Apple, its biggest holding, was a key driver as its value soared by more than 40% to about $89 billion in the three-month period. The filing shed light on Berkshire's $13 billion in net stock sales last quarter, as outlined in its earnings last week. Its dumping of the "big four" airline stocks in April accounted for almost half of that amount, while the remainder reflected its sale of several, mostly financial, holdings. Berkshire's earnings had fueled speculation this week about what Buffett sold. Investor Chris Bloomstran predicted he ditched JPMorgan, while finance professor David Kass anticipated a Wells Fargo exit. Buffett's extensive pruning of his portfolio strikes a contrast to his aggressive spending in recent weeks. Berkshire struck a $10 billion deal to acquire most of Dominion Energy's natural-gas assets in early July, plowed more than $2 billion into Bank of America stock in the three weeks to August 4, and appears to have repurchased more than $2 billion of its stock in July.Join the conversation about this story » NOW WATCH: Why American sunscreens may not be protecting you as much as European sunscreens
'Britain's Warren Buffett' explains why the Berkshire Hathaway chief isn't striking many deals, and shares 1 key lesson from the investor that he's applying today
Warren Buffett famously struck lucrative deals with Goldman Sachs, General Electric, and other struggling companies during...Warren Buffett famously struck lucrative deals with Goldman Sachs, General Electric, and other struggling companies during the financial crisis. He wasn't able to repeat the feat during the coronavirus crash because the banks were in better shape and the government provided aid, a fund manager dubbed "Britain's Warren Buffett" told Business Insider. "There just haven't been the opportunities this time around," said Keith Ashworth-Lord, investment chief of Sanford DeLand, which manages the SDL Buffettology Fund. Ashworth-Lord also shared the Buffett strategy he's found most useful during the crisis. "The most important lesson is to switch off markets and concentrate all your effort on assessing what a business is really worth and what you are being asked to pay for it," he said. Visit Business Insider's homepage for more stories. Warren Buffett has been slammed as "washed up" and urged to reinvent himself after failing to deploy his Berkshire Hathaway conglomerate's massive cash pile during the coronavirus crash. A fund manager dubbed "Britain's Warren Buffett" isn't surprised by claims that his namesake is past his prime. "I wish I had a tenner [£10] for every time I have heard that criticism of Warren Buffett aired!" —Keith Ashworth-Lord, investment chief of Sanford DeLand, which manages the SDL Buffettology Fund, told Business Insider this week. The SDL Buffettology Fund has drawn on Buffett's investing principles to return more than 220% since it was launched in 2009. Buffett famously swooped in as a "lender of last resort" to Goldman Sachs, General Electric, and other companies during the financial crisis. The Berkshire chief hasn't struck the same deals this time around because the big banks are better financed and governments have moved quickly to bail out struggling businesses, Ashworth-Lord said. "There just haven't been the opportunities this time around," he added. Buffett might not be playing the white knight, but the billionaire investor's teachings are still useful for navigating the current environment, Ashworth-Lord said. "The most important lesson is to switch off markets and concentrate all your effort on assessing what a business is really worth and what you are being asked to pay for it," he said, referring to Buffett's view that investors buy parts of companies and shouldn't be distracted by stock-price movements. When others panic and sell, shrewd investors can buy a piece of a quality business on the cheap. Buffett famously summed that up by advising to "be greedy when others are fearful." "Bear markets eventually pass and it is in times of panic that the best pricing opportunities arise," Ashworth-Lord said. He also warned against trying to time markets, instead recommending a "steady drip of investment in at regular intervals." Ashworth-Lord also shared what he expects from Buffett in the coming weeks. "Given the amount of cash that Berkshire is sitting on and where prices are today, I would have thought that buybacks come into the frame," he said. Indeed, it appears that Buffett may have repurchased more than $5 billion worth of Berkshire stock in recent weeks. However, the investor's focus on value could limit his options when it comes to buying stocks or making acquisitions. "Buffett has repeatedly said that he doesn't see bargain basement prices on offer yet," Ashworth-Lord said.Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America