Over the past few days, there has been a spike in the number of analysts and media commentators questioning whether or not Warren Buffett (Trades, Portfolio), the Oracle of Omaha and chairman of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), has lost his touch.
Two big events have sparked this questioning. First, last year, Berkshire Hathaway's book value increased by only 0.4% according to the conglomerate's year-end letter to investors. The per share market value of the company increased by 2.8%.
Both of these figures are significantly below the long-term average annual growth rates of 18.7% and 20.5%, although they still beat the S&P 500 for the year.
The other development that has caused investors and analysts to start to question whether or not Warren Buffett (Trades, Portfolio) has lost his touch is the Kraft Heinz (KHC, Financial) debacle.
Earlier this month, Kraft Heinz took a $15.4 billion write-down for its Kraft and Oscar Mayer brands and other assets, slashed its dividend, and said that the U.S. Securities and Exchange Commission was probing its accounting. A few days afterward, Berkshire Hathaway revealed that it was taking its own $3 billion writedown related to Kraft Heinz.
Buffett then went on CNBC to say, "I was wrong in a couple of ways on Kraft Heinz," and "We overpaid for Kraft." He went on to say that he won't be adding to the position, but he won't be selling either.
This is the second substantial investment mistake Buffett has admitted making over the past decade. The first was IBM, which he exited a few years ago before he started building a stake in Apple, what is today Berkshire Hathaway's largest dollar-value shareholding.
So, the question is, has Buffett lost his touch?
Answering the question
To put it simply, I think the answer to this question is no. However, I do think that the market environment over the past decade has constructed his ability to act in the way that creates the most value for shareholders of Berkshire Hathaway.
For the past few years, the Oracle of Omaha has been sitting on his hands, waiting for the next large acquisition for Berkshire Hathaway. So far, he has not found one because the prices of companies are so high.
Historically, Buffett has completed most of his deals in bear markets where prices are low and extremely attractive.
That is not to say that Berkshire Hathaway is no longer attractive as an investment.The company remains attractive, but not as a fast-growing business. The enterprise is one of the best stocks on the market to preserve and grow investors capital steadily -- something even Buffett himself has acknowledged -- but if you are looking for fast-growing equities, this is not one of them. Berkshire is now more of an index fund made up of some of the world's most high-quality companies with downside protection in the form of a $112 billion cash balance, ready to deploy if the market slumps.
This leads me to the conclusion that Buffett has not lost his touch; at least, it doesn't look as if he has lost his touch yet.
The Oracle of Omaha has always approached investing from an ultra long-term perspective, and investors in Berkshire Hathaway should do the same. It is foolish to evaluate the business based on one year of performance or even one market cycle.
Buffett might have made a few investment mistakes over the past decade, but he has made many more intelligent investment decisions that have generated billions of dollars in profits for Berkshire Hathaway shareholders. One of the reasons for his success is that he has always been willing to change his opinion and views on a company and admit when he has made a mistake. Unfortunately, while this is a positive character attribute, many tend to concentrate only on the errors and ignore all the positives.
If you look past the mistakes and concentrate on my rest of Berkshire Hathaway, you will see one of the strongest companies in the U.S. and indeed the world that is likely to continue to generate strong returns for investors for many decades to come.
Disclosure: The author owns shares in Berkshire Hathaway.
