Is The Oracle Losing His Touch?

Published on Wednesday, 09 May 2012 00:00 Written by Todd Shriber

Legendary value investor Warren Buffett didn’t become legendary by lagging the S&P 500 on a regular basis, but that’s exactly what Berkshire Hathaway’s (NYSE: BRK-A, BRK-B) equity portfolio has doe for the past three years. Before rushing to criticize Buffett, investors should note that the SPDR S&P 500 is up 55.31% in the past three years and topping that performance would be hard for probably 80% or more of the fund managers out there.

Then again, investors have come to expect more from Buffett. The Oracle of Omaha can move almost any stock he so chooses and thousands of investors, both professional and retail, have been known to mimic Berkshire’s equity portfolio to a tee.

That might be part of the problem. Berkshire’s equity positions are widely known, but not until after the company makes it purchases. Then investors that live and die by Buffett’s every move and come in and by the same stocks. That’s good for Buffett, but it’s not always good for the investors attempting to establish their own "baby Berkshires."

It’s easy to see why Berkshire’s equity portfolio may have lagged the broader market over the past three years. While the firm’s large positions in financial services stocks such as American Express (NYSE: AXP), U.S. Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC) have helped, most of the firm’s other positions are decidedly low beta, such as Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG).

Over the past three years, one of the best-performing select sector SPDRs has been the Technology Select Sector SPDR (NYSE: XLK), but until late 2011, Buffett didn’t own any tech stocks. Energy stocks were also bigger winners from the March 2009 bottom through a good part of 2011, but Berkshire only held token positions in two oil stocks, Exxon Mobil (NYSE: XOM), which has been eliminated from the portfolio, and ConocoPhillips (NYSE: COP).

Zeroing in on some of Berkshire’s holdings and how they’ve performed recently sheds even more light on why the firm’s stock investments have failed to outpace the broader market. In the past three months, Gannett (NYSE: GCI) and rival Washington Post (NYSE: WPO) have both incurred double-digit losses. Costco (NASDAQ: COST) has lost almost 7% in that time while Moody’s (NYSE: MCO) has slid nearly 8%.

Procter & Gamble has slid nearly 5% over the past 90 days and over that time horizon, 10 of Berkshire’s other stock investments have lost 2% or more and that’s not including the names already mentioned.

This may really depress those that revere Buffett so much: He has also lagged the Vanguard Total Stock Market ETF (NYSE: VTI) over the past three years meaning investors could have used a passively managed product with fees of 0.06% and done better than one of the most successful investors of all time.