‘Stuck in the past’: Is Warren Buffett losing his Midas touch?

Analysts have been warning about legendary American investor Warren Buffett “losing his magic touch” for more than a quarter century.

Yet, the 94-year-old CEO of Berkshire Hathaway, an investment management company, kept adding billions of dollars to his net worth year after year.

Buffett’s name first appeared on the richest people’s list in 1986 when he joined the billionaires’ club at age 56.

As of the latest count, he is worth $144 billion, which makes him the ninth richest man on earth.

But now, there’s a growing perception among market commentators that the famed investor from Nebraska has finally lost his Midas touch.

His investment management firm is still making lots of money, but not as much as it used to.

A recent analysis by The Economist shows that buying shares worth $200,000 in Berkshire Hathaway in 2014 would have tripled one’s investment in 10 years. Not bad, right?

But the problem is that an equal investment into a run-of-the-mill index-tracking fund 10 years ago would have generated roughly the same kind of returns.

In simpler words, the Oracle of Omaha has produced profits in the last 10 years that are no better than those of a mutual fund that passively invests in the biggest American companies without human input.

For perspective, a $200,000 investment in Apple stock 10 years ago would have made an investor a millionaire “nearly twice over”.

Stuck in the past

Buffett’s investment record has been “underwhelming” in recent years. The Berkshire Hathaway stock has underperformed the benchmark S&P 500 index in three of the last six years, including massive double-digit underperformances in 2019 and 2020.

Analysts say a major reason for the slowdown in his wealth build-up is that Buffett does not invest in technology stocks.

The so-called new-economy stocks—Nvidia, Alphabet, Facebook, Microsoft, Tesla etc—have driven the stock market for many years now. But few of these technology companies appear in the portfolio of Berkshire Hathaway, which mainly owns stakes in old-economy firms like Coca-Cola, Bank of America, Dairy Queen, energy firm Chevron and insurer Geico.

Apple is perhaps the only technology firm Buffett has invested in, but the nonagenarian views it as a consumer company rather than a tech firm. In fact, tech investments by Berkshire Hathaway get little more than a passing mention in its annual accounts.

Buffett’s entire personal wealth is invested in Berkshire Hathaway, which has generated an annualised return of nearly 20 percent since its inception in 1965. The return is almost twice the annual gain of 11 percent in the S&P 500 Index, a stock market benchmark that tracks the average performance of top American firms.

But the multi-billionaire remains “stuck in the past” with large investments concentrated in little-known companies from sunset industries like power plants, railways and newspapers.

He is “not big on newcomers” like AI firms, which means he has mostly sat out the stock market rally driven by AI firms like Nvidia that produced nearly 200 percent returns in the past year alone.

Buffett has repeatedly cautioned investors against investing in businesses they can’t understand. In fact, he warned shareholders of Berkshire Hathaway recently about “AI scams” becoming the “growth industry of all time”.