Has Warren Buffett lost his magic?

Berkshire Hathaway's 2020 performance has been less than spectacular. Has one of the greatest investors of all time lost his magic touch?

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Has the great Warren Buffett – chair and CEO of Berkshire Hathaway (NYSE:BRK.A)(NYSE: BRK.B) – lost his magic?

Known as the Oracle of Omaha, Buffett is generally regarded as one of the greatest investors of all time. His holding company, Berkshire Hathaway is one of the greatest American success stories of the 20th century. Since 1964, Berkshire shares have grown by an average of 20.9% per year. In other words, back in '64, a share in Berkshire would have cost you approximately $12.37. Not bad considering one BRK.A share will cost you US$275,000 today.

But Berkshire's performance over the last 10 years, and particularly during the 2020 market crash, has some investors wondering if Buffett has lost his mojo. According to reporting in the Australian Financial Review (AFR), Berkshire had it's worst performance against the US S&P 500 benchmark in 2019, and 2020 is looking to be just as bad.

Has Buffett lost his magic touch?

Recent Buffett deals – specifically involving Kraft Heinz and Occidental Petroleum – have been hugely damaging for Berkshire's balance sheet. And his now-infamous selloff of US airline shares in March looks to have been executed pretty close to the market bottom. To make matters worse, all 4 of the airlines Buffett unloaded at multi-billion dollar losses have rebounded strongly since March.

Berkshire was seemingly ready for the market wipeout in March with more than US$137 billion of cash ready for deployment. Stockpiling cash late in the market cycle has been Buffett's modus operandi for decades now. Many of Berkshire's biggest moneyspinners over the past decade stemming from the global financial crisis in 2008-09.

But Buffett didn't end up putting even a dollar to work in the 2020 market crash, telling investors in May that, "we haven't seen anything attractive".

What's going on at Berkshire?

The unfortunate reality is that Buffett is now close to 90 years old. He openly admits that the tech companies that now make up the lion's share of US equity markets are mostly outside his circle of competence. Apart from a gargantuan stake in Apple (initiated in 2016), Berkshire has largely stayed away from tech shares. This appears to have cost the company dearly in recent years.

It has been a challenging few years for Berkshire Hathaway and Warren Buffett. But he has managed to come back from periods of underperformance before. If you look at the history of this iconic investor, you'll see that it's never been a great idea to bet against Berkshire Hathaway. So I'm not giving up on Buffett just yet.

Sebastian Bowen owns shares of Kraft Heinz. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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