Warren Buffet vs. the Market

by Wayne Ferbert on December 9th, 2011

I am a big fan of Warren Buffet - the investor. (Full Disclosure: I am indifferent to Warren Buffet the political activist.) But I like his investing style. I have read many books on investing in my life. And I always gravitate towards value investing as my style of preference. He is a value investor - and so am I.

His value investment approach is right out in the open for everyone to see in Berkshire Hathaway stock (BRK-B). And his performance is expressed in the stock price for BRK-B (or the A shares) every single day.

But what about his performance of late? If you bought Berkshire shares on the first day of January in 2010 - 23 months ago - you'd be fairly content. The S&P 500 index (our Market proxy) is up about 9% over that time while BRK-B is up about 16%. So you would be beating the market, right?

It is a little misleading, though. All of that out-performance occurred in January of 2010. If you instead bought on the first day of February, you would be up about 2% while the Market was up about 14%. Ug! That would hurt.

So Warren Buffet has been losing to the market for the last 22 months. And by more than 10% points of return. Interesting?

I have to admit, for an investor that I admire this much, it makes me wonder whether this under-performance will persist? BRK-B is not an easy company to analyze since it owns so many underlying companies. An investment in BRK-B is an investment in Warren Buffet and his investing style.

At Buy & Hedge, we always look to hedge any position. So, if you decide to invest in Berkshire Hathaway, make sure to follow our first Iron Rule: Hedge every investment. Luckily, BRK-B has a very liquid and robust options market so it is a good candidate to build a hedge against.

At Buy & Hedge, we don't maintain a watch list or a conviction list. Maybe in the future we will. In the meantime, if we did have a watch list, I would add BRK-B to it. I am keeping a close eye on it going forward.

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