Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) is having a bad year, and just as night follows day, haters are quacking about how the Oracle of Omaha has lost it.
This fatuous canard is tiresome.
It’s also ageist.
It shouldn’t need repeating, but Warren Buffett is a long-term investor. His preferred holding period, in his own words, is “forever.”
That’s why Warren Buffett’s own toughest test for BRK.B’s performance is that for any trailing five-year period, the stock must outperform the S&P 500 on a total return basis.
With the exception of 2013, Warren Buffett has cleared that hurdle every year since 1965. So, what of BRK.B’s trailing five-year performance right now? It’s beating the broader market by a remarkable 5 percentage points.
True, 2015 has been an unusually poor year for BRK.B. The stock is down 11% on a price basis vs. the S&P 500, which is up less than 1%. That’s big time underperformance.
It’s also more noise than signal because the data sample is far too short.
Furthermore, BRK.B’s underperformance will almost certainly prove to be transitory, given the Warren Buffett time frame.
BRK.B is getting hurt by the rout in oil prices and other commodities. Warren Buffett famously loves railroads because they’re a basic part of the economy’s infrastructure, but these days they’ve become somewhat of a liability.
Tumbling prices for oil, coal, wheat, corn — you name it — hurts demand for transportation by rail. As a result, Berkshire Hathaway’s ownership of BNSF Railways is dragging on results. A number of Berkshire Hathaway’s manufacturing companies are also affected by commodity prices.
Warren Buffett’s Losing Streak Won’t Last Long
Lest we forget, commodity prices are cyclical. Sure, we could be in a prolonged slump with the end of the China-driven super-cycle, but do you really expect oil prices to remain depressed forever?
Like commodities, equities are also secular. Warren Buffett has said plenty of times that BRK.B will tend to lag when the S&P 500 is putting up outsized gains. But, it will also hold up better when the S&P 500 is in a tailspin. That’s how it’s constructed. Limit the downside and the upside will take care of itself.
That’s how he can remain so sanguine in both good times and bad — as he should. The track record speaks for itself. It’s almost impossible to beat the market over any extended length of time, and yet since 1965, BRK.B has outperformed the S&P 500 on a total return basis.
That performance is so extraordinary it puts Warren Buffett in a super-elite pool, one that holds less than 1% of the population of investors, according to an analysis by Salil Mehta, a statistician and econometrician.
Even at age 85, Warren Buffett shows zero signs of having lost his cognitive acuity. Neither has his partner Charlie Munger, who’s 91 himself. There’s no reason to think BRK.B remains in the hands of anything less than an elite investor.
We’d need a string of bad years for BRK.B before we could reasonably wonder if Warren Buffett has indeed lost his touch. For now, wise investors know that such incomparable performance deserves the benefit of the doubt.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
