Warren Buffett: Berkshire Hathaway’s ‘Eye-Popping’ Gains Era May Be Over

Warren Buffett’s sustained success over the past several decades has earned him the title ‘Oracle of Omaha’ and made him one of the world’s most respected investors. However, the firm’s track record of delivering “eye-popping” gains could be over.

Despite Berkshire Hathaway’s [BRK-A] Class A shares being up 12.6% year-to-date through 22 April — outpacing the S&P 500, which has risen just 4.1% — the share price is down 2% in the past month and 0.5% in the past week. The S&P 500 is down 5.1% over the past month and 3% over the past week.

While it’s most likely a short-term blip, some investors are arguing that Buffett is losing his stock-picking touch. Among them is Larry Swedroe, Head of Economic and Financial Research at Buckingham Wealth Partners, who told CNBC’s ETF Edge earlier this month that Buffett isn’t a great stock-picker.

“What Warren Buffett’s ‘secret sauce’ was, he figured out 50, 60 years before all the academics what these factors were that allowed you to earn excess returns,” said Swedroe.

Buffett Believes Above-Market Return in 2024 Will Be Difficult

Buffett is famed for investing in boring stocks, particularly in the consumer goods, energy and finance sectors, which have historically helped his firm outperform the S&P 500.

While Berkshire gained 15.8% in 2023, the biggest rise since 2021’s 29.6% gain and the second-largest since it gained 21 9% in 2017, the stock lagged the S&P 500, which surged 24% last year.

For his part, Buffett tempered shareholders’ expectations for 2024 and beyond in his most recent annual letter, released in February. He said that the days of “eye-popping performance” could be over because of Berkshire Hathaway’s size and conservative capital management.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced,” Buffett wrote.

He added that there are no “meaningful options for capital deployment” outside the US.

How Buffett Favourites Perform

So, is Berkshire Hathaway underperforming the S&P 500 really a sign that Buffett has lost his stock-picking touch? OPTO takes a look at how some of his top holdings have been faring recently.

Apple

Despite paring its stake in Apple [AAPL] in Q4 2023, offloading 10,000,382 shares, the stock still accounts for 50% of Berkshire Hathaway’s $347.4bn portfolio as of 31 December 2023.

The iPhone maker sold 50.1 million smartphone handsets in the first three months of the year, taking a 17.3% share of total quarterly sales, according to market research by IDC. This is down from 55.4 million smartphones sold and a market share of 20.7% in the year-ago quarter.

As Chinese smartphone makers like Xiaomi [1810:HK] eat into the iPhone’s dominance, Apple stock could be “killed” if Buffett’s next 13F filing shows that he sold more Apple shares in Q1, warned Mizuho analyst Jordan Klein last month.

Bank of America

Buffett neither bought nor sold Bank of America [BAC] shares in Q4 2023. The holding is worth $34.8bn, representing approximately 10% of Berkshire’s portfolio.

Bank of America’s net income for the first three months of the year was $6.7bn, down from $8.2bn in the year-ago period. The bank is to set aside money to cover credit card losses — net charge-offs, which is debts that aren’t expected to be recovered — rose 85.9% year-over-year to $1.5bn in Q1.

There were bright spots in the earnings report, however. “Sales and trading businesses continued their strong 2023 momentum this quarter, reporting the best first quarter in over a decade,” said CEO Brian Moynihan in a press release.

American Express

Buffett neither bought nor sold American Express (Amex) [AXP] shares in Q4 2023. The holding is worth $28.4bn, representing 8.2% of the portfolio.

The credit card giant reported an 11% year-over-year rise in revenue for Q1 2024, while spending on the firm’s cards was up 6% to $367bn.

“We continue to attract high-spending, high credit-quality customers to the franchise,” Amex Chairman and CEO Stephen J Squeri said in a press release issued last week.

Coca-Cola

Buffett didn’t touch his Coca-Cola [KO] holding either in Q4 2023. It’s worth $23.6bn, representing 6.8% of the portfolio as of 31 December.

While inflation has meant consumers have less disposable income to spend on Coca-Cola products, there are positive signs in other segments.

“We’ve seen strong growth for some of the higher price point, premium segments, like Fairlife, Core Power [and] Simply… there’s clearly multiple things going on in the landscape,” Coke Chairman and CEO James Quincey said on the firm’s Q4 2023 earnings call in February.

Sales popped 7% to $10.8bn in Q4, driven largely by higher prices.