On Managing Money Pit Yourself Against Buffett

Nobody’s perfect. Even Warren Buffett compiled several years of underperformance in recent decades. His peers outperformed him for several years. His underperformance was significant.

For 2013, Berkshire’s book value rose only 18% vs 32% for the S & P 500, a huge disparity.  I’d be out of business if I reported such numbers. He underperformed benchmarks for 4 out of 5 years back then. Coca-Cola, IBM, Exxon Mobil and Wal-Mart did not bring home the bacon. 

During the financial meltdown of 2008-’09 however, Buffett emerged as the investment bank of last resort. Since then, Berkshire acquired mainly for cash major properties, GDP dependent like Burlington Northern. He then bought NU Energy for $18 billion. This is a utility owned by H. J. Heinz. Carries a big cash yield. 

For 2013, Berkshire’s book value rose 18%. Its purchase of the preferred stock in Bank of America added several billion in 9% yielding paper. I had to buy some of the comparable preferred stock then yielding closer to 5%. 

If somebody showed me this list of holdings, I’d yawn and go back to sleep. Buffett’s focus never changes. Believe him, when he pontificates that he’s investing for the next hundred years. I bought American Express same time as Warren. The Street expected Amex to go out of business, but they came back because of Tino DeAngelis’s bad paper. Their receivables were low volatile holdings. 

I sold out my position after a couple of years and thought I was a great operator. Warren still owns his paper after 50 years of solid numbers from AXP. On the other hand, I played Polaroid and Xerox with great results. Then got off the bus before both companies fell apart from competitive forces like the Japanese camera operators who took control of the copier market sector. 

When you see management fail like Edwin Land’s at Polaroid, you don’t pause to ask questions. You bang out your goods. Edwin Land had reached an advanced age. 

The theme of underperformance for even the biggest and best operators in the tech sector can be persistent. Note this chart on Microsoft from 2009 to 2014. The stock underperformed, missing fully both the S & P 500 Index and NASDAQ Computer group,  The gap was material,  35% over 5 years. 

All this goes to show you that a buy and hold strategy won’t always work for even prime growth stocks. Note Microsoft.