Tuesday, May 06, 2008
Buffett's Undeserved Adulation
This past weekend provided Warren Buffett with his usual platform to expound to tens of thousands of investors and the business media. CNBC now sends Becky Quick, Buffett's personal favorite media representative, out to Omaha for the entire weekend and her unparalleled access to the billionaire.
Call me jaded, but I've finally had enough of Buffett. The accompanying Yahoo-sourced charts demonstrate part of the reason.
The first chart illustrates how, for the five years ending last May, Berkshire barely outperformed the S&P, but had been about even only six months prior, and was dead even in early 2006. As the chart shows, Berkshire effectively performed no better than the S&P from January 2005 until mid-2006.
Berkshire only exceeded the index by as much as 20 percentage points of return briefly during the entire five year period.
Updating the chart for the latest year, it looks even more, well, mediocre. Berkshire only rose to significant outperformance of the index in the last six months, and even that ebbed a bit by early this year.
By the way, since Berkshire pays no dividends, the slope of the curve, and differences of returns between dates for Berkshire are total returns.
For all of the adulation over Buffett's performance, I just don't see it for the past six years.
Then this quote from Buffett on Saturday appeared in the Wall Street Journal,
"Anyone who expects us to come close to replicating the past should sell their stock. It's not gonna happen," he said, "You may have something better to do with your money than buy Berkshire."
Now, that sure is an interesting statement coming from Buffett. A guy who is lauded on CNBC as some sort of modern-day Midas. The "Oracle of Omaha."
What's he saying, that his shareholders should just settle for even less than the usually-average total returns he's been giving them for the past six years? Because unless you are a market timer of extraordinary skill, you've mostly gotten a return from Buffett's management that is very close, for most of the years, to the S&P.
Berkshire had $44.3B in cash on its balance sheet as of its latest quarterly filing. The yearly cash thrown off by the businesses in its portfolio is $12-13B.
Should Buffett be dividending that cash hoard to shareholders? Maybe he's unable to deliver consistently superior returns to his shareholders going forward because he's keeping too many assets under management.
I never have completely understood the manner in which the business media and investors view Buffett and/or Berkshire, a sentiment which I expressed in this post from last December.
For example, if he's an investor, then Buffett's investments aren't coming through to shareholders as total returns that handily beat the market. However, if he's a corporate CEO, then Buffett's management results are, again, nothing to write home about on a consistent basis as one of many potential commercial enterprises in which people can invest.
My business partner joked when I articulated this conundrum, saying,
"Buffett...he's a wave, no, now he's a particle."
Funny, but actually on point. Is Buffett the portfolio manager of a very large, actively-managed, closed-end portfolio? Rather like, well, GE?
Or is Buffett just another conglomerate CEO?
Either way, I still just don't see the evidence that Buffett has rewarded his investors for most of this decade with superior total returns.