8 ms·

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The seemingly unconditional refusal to explore technology companies. (While his Apple investment was great, even Buffett would tell you this is a consumer company and not a tech company) The allowing of the two new managers to keep breaking Berkshire's rules, such as not investing in IPO's, or not investing in airlines. The large write down in PCP. The double-speak about "never bet against America" while remaining paralyzed during the COVID panic. Maybe these things are moot compared to the scale problem. But I think the more disheartening issue is Buffett's last 5-6 letters have been forgettable, and today's was really just a recap of Berkshire's main assets, not offering anything particularly insightful or interesting. I think he's still doing an admirable job but Berkshire just isn't what it used to be. Everything has a cycle.

appleiigs 6y ago
Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.
- guantanamo_bob 6y ago
  Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).
blantonl 6y ago
I think investors over the past year have grown so accustomed to something new and shiny and revolutionary coming every week to get excited about that they've forgotten that making money in markets successfully is about a long term focus and a LOT of boring details and unsexy businesses. I, like a lot of people LOVE trading stocks and derivatives, and trying to beat the market -- more so as a hobby and as an opportunity to learn more about the more esoteric components of financial markets and how things operate. I've been doing it for over 15 years and I've paid my dues in terrible trades, and seen some great plays work out. The process of options pricing, managing ex-dividend dates and options, derivatives plays, trading styles like position and swing etc all are enormously fun to learn the nuances of. It's a fascinating world. At the same time, the vast majority of the money that I save for retirement is your standard run of the mill dollar cost aversaging (DCA) into targeted funds based on my risk tolerance, age, and retirement objectives. Really boring stuff that works over 20 years, not 3 months. Buffet is one of those guys that gets less sexy when volatility is increased, and more realistic when things are boring and people are licking their wounds. Berkshire is going to be just fine. And they're doing just fine.
- deleted 6y ago
  [deleted]
the-dude 6y ago
Fair enough. But if his letters are not so insightful anymore, whose are?
- ivanche 6y ago
  In the last few years I've enjoyed reading letters (Annual Reports as they call it) written by Frank Martin of Martin Capital Management LLC. https://www.mcmadvisors.com/newsmaterials/ https://www.mcmadvisors.com/newsmaterials/
- tim333 6y ago
  It's a different kind of stuff but I find Jeremy Grantham pretty insightful. Grantham does more overall market levels rather than individual stocks, Buffett the reverse. Here's a recent one https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/ https://www.gmo.com/americas/research-library/waiting-for-th... on how things are a bit pricey now. Though he's not a perma bear - this is one he put out saying things were cheap almost exactly at the 2009 bottom https://www.gmo.com/americas/research-library/reinvesting-when-terrified/ https://www.gmo.com/americas/research-library/reinvesting-wh... Grantham is mostly retired but has popped up recently to comment on the current situation. He's on youtube a bit too if you google.
simo7 6y ago
I'd say he broke his own game of investing, rather than the game in general. Given what he thinks he understand there's not enough opportunities to allocate this amount of capital. I guess that's why he hired the two new managers. By the way they did come up with some of the best ideas in recent years like Apple and Snowflake.
- dominotw 6y ago
  > best ideas in recent years like Apple and Snowflake. Are these really the best ideas. Bought apple only couple of years ago, snowflake was arguably the most hyped stock of all time. I don't see what the insight was here.
  - simo7 6y ago
    They are certainly very successful ideas in terms of outcomes. Apple went up more than 3X since he bought it in 2016.
dominotw 6y ago
> In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I hear this often that berkshire isn't what it used to be because of 'scale'. What does this even mean. At what point does it become too big. Is there a general logic that after X billion $$, investment firms become inefficient?
- from 6y ago
  If you have one billion dollars and find a $100 million opportunity, you have an ROI of 10%. If you have one hundred billion dollars and find a $100 million opportunity, you have an ROI of 0.1%. He needs to search for very large opportunities to attain a good return because he has so much capital. This is why some funds return money to investors if they get too big--it's very difficult to generate returns with that much money.
  - dominotw 6y ago
    > If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?
    - rsj_hn 6y ago
      Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.
      - dominotw 6y ago
        >Because the market is finite in size How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.
shawnz 6y ago
> The seemingly unconditional refusal to explore technology companies. ... The allowing of the two new managers to keep breaking Berkshire's rules If you think they are stagnating with their current mindset, then shouldn't breaking their existing rules be a good thing?
- silexia 6y ago
  The original comment is pretty entertaining. The commentator assumes that they better understand business than the two men with the best record in recent American history. Buffet continues to follow his general principles very well of buying great businesses for reasonable prices and holding pretty much forever. Not following BS trends and buying wildly overpriced tech stocks like Zoom, Zillow, or meme stocks like Gamestop or AMC is a huge plus in most value investors minds.
- bedhead 6y ago
  That's a fair point. Let me clarify by saying that the IPO's and airlines were two things that Buffett was repeatedly adamant and proud about over many years. These were more hard and fast rules. The tech thing is different, that was more Buffett just admitting it was outside his area of expertise. I think it's been especially confounding since Buffett has for a long time professed a deep admiration for Bezos and Amazon, yet never really acted on it.
mettamage 6y ago
Investing and poker have some fun commonalities. One that I want to focus one in this particular case is: always play the game you know well and know how you're going to win it [nuances, 0] In Poker: find the fish, understand why they're fish and exploit it [example, 1]. In investing: find underpriced assets, understand why they're underpriced and exploit it [examples, 2, 3]. From this perspective, Buffett doesn't understand how price movement works in tech companies. And that's ok. [0] You can't win everything of course, but if you're going to play a losing game by default then you're basically buying information. Once you have enough information, then it's all about execution. I daresay that Warren Buffett has enough information on a particular method of successful investing. That's all he needs, so he needs to focus on games that he knows how to win. [1] E.g. through math/theory or math/data -- if you can get your hands on it -- (random player vs tight aggressive player) [2] E.g. through math/theory or math/data (population will grow to 11 Billion --> economic productivity will therefore grow because bigger global work force --> world economy will grow in the long-term) [3] Buffett's famous example is of course his own brand of value investing. The central thesis of value investing is: if a company is going to close shop, the scrap value of that company will be higher than the market cap of that company. There's a lot more to it, but that's the gist of it. One nuance, for example, is that you then try to pick the companies that are the most severely underpriced, have amazing management and a solid competitive domination strategy (e.g. crazy brand recognition or a certain asset that has a really high barrier of entry).
- ethbr0 6y ago
  Obligatory Buffett paraphase: there are no called strikes in investing (ie if you choose not to swing at an opportunity, that then turns out to be good, nobody penalizes you) As much of Berkshire's success has been based on limiting losses as pushing successes. "Buffett declines to invest in company" is a less sexy headline than "Buffett buys large stake in X" though. Maybe Buffett's old. Maybe Berkshire is played out. Maybe they miscalled the pandemic churn. Or maybe the market is just so screwed up now that they're declining to swing. I believe Berkshire has always been a macro-trend company? If we're looking for someone who traded in and out of pandemic dips and bubbles, that's very much not-Berkshire.
throw0101a 6y ago
> While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. I also think that value investing has been 'automated away' to a certain extent such that him doing it (with staff help) no longer can compete with other market players. > Berkshire has grown so large that it has significant scale problems. This topic has actually been studied: (mutual) fund performance of top performing funds can be based on a manager's skill, but after a certain point that skill reaches the end of the runway. The more skilled the manager, the larger the AUM they can still get returns for, but at some point it's just too much. > For an average fund in the cross-section, we estimate a drop in alpha of 20 basis points if the fund doubles its size over one year. We also find a non-negligible impact of the size of the fund industry, although its magnitude is significantly smaller than the impact of individual fund scale. We reconcile our findings with existing empirical studies. Taken as a whole, our results lend considerable support to theoretical models that build on the premise of decreasing return to scale for active portfolio management. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385 Discussed in the Rational Reminder podcast: * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (~15m30) * https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s Something to consider for anyone piling into (e.g.) ARK: * https://awealthofcommonsense.com/2020/12/a-short-history-of-chasing-the-best-performing-funds/ https://awealthofcommonsense.com/2020/12/a-short-history-of-...
imglorp 6y ago
> seemingly unconditional refusal to explore technology companies Don't forget they bought a truckload of IBM in 2015, leaving everyone scratching their heads. Probably lots of IBM'ers on here with better insight, but from the outside it appeared they were pooping where they slept: selling off hardware units, dabbling badly in cloud, offshoring key consulting operations and in general hurting their brand. Of course Berkshire sold it all in 2018 and bought more Apple. Please tell me they didn't think IBM was a consumer company, as an alternate play to Apple in the same space as Apple? Right now it seems to be a poor services company.
dalbasal 6y ago
I think not investing in technology was a sort of inflection point for buffet. His mantra was to understand what he was investing in, and he didn't understand most tech markets. Tech markets got too big to sit out. 5 of the top 10 most profitable companies are technology companies. The rest are financial firms (BRK is actually the most profitable). Most of these tech companies' value is related to network effects, platform control and such. These are "moats" that WB doesn't understand. So yeah... I think times overtook the man. The space he was operating in shrank. That said, BRK is still doing fine, well run, etc. They also impact the world in ways a vanguard or softbank don't.
TheAlchemist 6y ago
While I'm also somewhat disappointed he doesn't discuss important topics as much as he used too, I think there are some hidden gems in this letter - especially this one: "Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the “proof” that an illusion is reality. Eventually, of course, the party ends, and many business “emperors” are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards." He is using the example of conglomerates, but to me, it sounds like a warning about current valuations. Regarding his investing performance, I think we should never judge his N last years - he's definitely looking longer term (which is amazing, given his advanced age). Berkshire is sitting on a huge pile of money, waiting for the bubble to pop. It may take a year, maybe 5, maybe even 10 - nobody knows. But when it does, we can safely bet that Buffett will put this money to work - and secure exceptional returns for the following 10-20 years.
tim333 6y ago
Well, the guy is 90. He's doing pretty well considering.

appleiigs 6y ago

Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.

guantanamo_bob 6y ago
Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).

blantonl 6y ago

I think investors over the past year have grown so accustomed to something new and shiny and revolutionary coming every week to get excited about that they've forgotten that making money in markets successfully is about a long term focus and a LOT of boring details and unsexy businesses. I, like a lot of people LOVE trading stocks and derivatives, and trying to beat the market -- more so as a hobby and as an opportunity to learn more about the more esoteric components of financial markets and how things operate. I've been doing it for over 15 years and I've paid my dues in terrible trades, and seen some great plays work out. The process of options pricing, managing ex-dividend dates and options, derivatives plays, trading styles like position and swing etc all are enormously fun to learn the nuances of. It's a fascinating world. At the same time, the vast majority of the money that I save for retirement is your standard run of the mill dollar cost aversaging (DCA) into targeted funds based on my risk tolerance, age, and retirement objectives. Really boring stuff that works over 20 years, not 3 months. Buffet is one of those guys that gets less sexy when volatility is increased, and more realistic when things are boring and people are licking their wounds. Berkshire is going to be just fine. And they're doing just fine.

deleted 6y ago
[deleted]

the-dude 6y ago

Fair enough. But if his letters are not so insightful anymore, whose are?

ivanche 6y ago
In the last few years I've enjoyed reading letters (Annual Reports as they call it) written by Frank Martin of Martin Capital Management LLC. https://www.mcmadvisors.com/newsmaterials/ https://www.mcmadvisors.com/newsmaterials/
tim333 6y ago
It's a different kind of stuff but I find Jeremy Grantham pretty insightful. Grantham does more overall market levels rather than individual stocks, Buffett the reverse. Here's a recent one https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/ https://www.gmo.com/americas/research-library/waiting-for-th... on how things are a bit pricey now. Though he's not a perma bear - this is one he put out saying things were cheap almost exactly at the 2009 bottom https://www.gmo.com/americas/research-library/reinvesting-when-terrified/ https://www.gmo.com/americas/research-library/reinvesting-wh... Grantham is mostly retired but has popped up recently to comment on the current situation. He's on youtube a bit too if you google.

simo7 6y ago

I'd say he broke his own game of investing, rather than the game in general. Given what he thinks he understand there's not enough opportunities to allocate this amount of capital. I guess that's why he hired the two new managers. By the way they did come up with some of the best ideas in recent years like Apple and Snowflake.

dominotw 6y ago
> best ideas in recent years like Apple and Snowflake. Are these really the best ideas. Bought apple only couple of years ago, snowflake was arguably the most hyped stock of all time. I don't see what the insight was here.
- simo7 6y ago
  They are certainly very successful ideas in terms of outcomes. Apple went up more than 3X since he bought it in 2016.

dominotw 6y ago

> In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I hear this often that berkshire isn't what it used to be because of 'scale'. What does this even mean. At what point does it become too big. Is there a general logic that after X billion $$, investment firms become inefficient?

from 6y ago
If you have one billion dollars and find a $100 million opportunity, you have an ROI of 10%. If you have one hundred billion dollars and find a $100 million opportunity, you have an ROI of 0.1%. He needs to search for very large opportunities to attain a good return because he has so much capital. This is why some funds return money to investors if they get too big--it's very difficult to generate returns with that much money.
- dominotw 6y ago
  > If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?
  - rsj_hn 6y ago
    Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.
    - dominotw 6y ago
      >Because the market is finite in size How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.

shawnz 6y ago

> The seemingly unconditional refusal to explore technology companies. ... The allowing of the two new managers to keep breaking Berkshire's rules If you think they are stagnating with their current mindset, then shouldn't breaking their existing rules be a good thing?

silexia 6y ago
The original comment is pretty entertaining. The commentator assumes that they better understand business than the two men with the best record in recent American history. Buffet continues to follow his general principles very well of buying great businesses for reasonable prices and holding pretty much forever. Not following BS trends and buying wildly overpriced tech stocks like Zoom, Zillow, or meme stocks like Gamestop or AMC is a huge plus in most value investors minds.
bedhead 6y ago
That's a fair point. Let me clarify by saying that the IPO's and airlines were two things that Buffett was repeatedly adamant and proud about over many years. These were more hard and fast rules. The tech thing is different, that was more Buffett just admitting it was outside his area of expertise. I think it's been especially confounding since Buffett has for a long time professed a deep admiration for Bezos and Amazon, yet never really acted on it.

mettamage 6y ago

Investing and poker have some fun commonalities. One that I want to focus one in this particular case is: always play the game you know well and know how you're going to win it [nuances, 0] In Poker: find the fish, understand why they're fish and exploit it [example, 1]. In investing: find underpriced assets, understand why they're underpriced and exploit it [examples, 2, 3]. From this perspective, Buffett doesn't understand how price movement works in tech companies. And that's ok. [0] You can't win everything of course, but if you're going to play a losing game by default then you're basically buying information. Once you have enough information, then it's all about execution. I daresay that Warren Buffett has enough information on a particular method of successful investing. That's all he needs, so he needs to focus on games that he knows how to win. [1] E.g. through math/theory or math/data -- if you can get your hands on it -- (random player vs tight aggressive player) [2] E.g. through math/theory or math/data (population will grow to 11 Billion --> economic productivity will therefore grow because bigger global work force --> world economy will grow in the long-term) [3] Buffett's famous example is of course his own brand of value investing. The central thesis of value investing is: if a company is going to close shop, the scrap value of that company will be higher than the market cap of that company. There's a lot more to it, but that's the gist of it. One nuance, for example, is that you then try to pick the companies that are the most severely underpriced, have amazing management and a solid competitive domination strategy (e.g. crazy brand recognition or a certain asset that has a really high barrier of entry).

ethbr0 6y ago
Obligatory Buffett paraphase: there are no called strikes in investing (ie if you choose not to swing at an opportunity, that then turns out to be good, nobody penalizes you) As much of Berkshire's success has been based on limiting losses as pushing successes. "Buffett declines to invest in company" is a less sexy headline than "Buffett buys large stake in X" though. Maybe Buffett's old. Maybe Berkshire is played out. Maybe they miscalled the pandemic churn. Or maybe the market is just so screwed up now that they're declining to swing. I believe Berkshire has always been a macro-trend company? If we're looking for someone who traded in and out of pandemic dips and bubbles, that's very much not-Berkshire.

throw0101a 6y ago

> While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. I also think that value investing has been 'automated away' to a certain extent such that him doing it (with staff help) no longer can compete with other market players. > Berkshire has grown so large that it has significant scale problems. This topic has actually been studied: (mutual) fund performance of top performing funds can be based on a manager's skill, but after a certain point that skill reaches the end of the runway. The more skilled the manager, the larger the AUM they can still get returns for, but at some point it's just too much. > For an average fund in the cross-section, we estimate a drop in alpha of 20 basis points if the fund doubles its size over one year. We also find a non-negligible impact of the size of the fund industry, although its magnitude is significantly smaller than the impact of individual fund scale. We reconcile our findings with existing empirical studies. Taken as a whole, our results lend considerable support to theoretical models that build on the premise of decreasing return to scale for active portfolio management. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385 Discussed in the Rational Reminder podcast: * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (~15m30) * https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s Something to consider for anyone piling into (e.g.) ARK: * https://awealthofcommonsense.com/2020/12/a-short-history-of-chasing-the-best-performing-funds/ https://awealthofcommonsense.com/2020/12/a-short-history-of-...

imglorp 6y ago

> seemingly unconditional refusal to explore technology companies Don't forget they bought a truckload of IBM in 2015, leaving everyone scratching their heads. Probably lots of IBM'ers on here with better insight, but from the outside it appeared they were pooping where they slept: selling off hardware units, dabbling badly in cloud, offshoring key consulting operations and in general hurting their brand. Of course Berkshire sold it all in 2018 and bought more Apple. Please tell me they didn't think IBM was a consumer company, as an alternate play to Apple in the same space as Apple? Right now it seems to be a poor services company.

dalbasal 6y ago

I think not investing in technology was a sort of inflection point for buffet. His mantra was to understand what he was investing in, and he didn't understand most tech markets. Tech markets got too big to sit out. 5 of the top 10 most profitable companies are technology companies. The rest are financial firms (BRK is actually the most profitable). Most of these tech companies' value is related to network effects, platform control and such. These are "moats" that WB doesn't understand. So yeah... I think times overtook the man. The space he was operating in shrank. That said, BRK is still doing fine, well run, etc. They also impact the world in ways a vanguard or softbank don't.

TheAlchemist 6y ago

While I'm also somewhat disappointed he doesn't discuss important topics as much as he used too, I think there are some hidden gems in this letter - especially this one: "Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the “proof” that an illusion is reality. Eventually, of course, the party ends, and many business “emperors” are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards." He is using the example of conglomerates, but to me, it sounds like a warning about current valuations. Regarding his investing performance, I think we should never judge his N last years - he's definitely looking longer term (which is amazing, given his advanced age). Berkshire is sitting on a huge pile of money, waiting for the bubble to pop. It may take a year, maybe 5, maybe even 10 - nobody knows. But when it does, we can safely bet that Buffett will put this money to work - and secure exceptional returns for the following 10-20 years.

tim333 6y ago

Well, the guy is 90. He's doing pretty well considering.