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Buffett's investments outside the US are dull, Credit Suisse says
Vanessa Desloires
552 words
2 Jul 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Warren Buffett's return on investments outside his home country are dull, Credit Suisse says, and an Australian portfolio created on his investment strategy would not include IAG.

Research undertaken by Credit Suisse analysts, led by Hasan Tevfik, found that Berkshire Hathaway's investments outside of the United States have returned 11 per cent per annum, the majority of those have come from one holding, PetroChina.

The median return was found to be a "mediocre" 8 per cent, Mr Tevfik wrote in a note. This is compared with the estimated 20 per cent return from US investments.

"To put this in context, stocks listed on the MSCI EAFE [benchmark index] have returned 8 per cent in US dollars since 2002," Mr Tevfik said.

"Berkshire has outperformed but not by the margin one would expect from the champion of investing."

The reason for this underperformance is that while Buffett's investment mantra of "wonderful companies at fair prices" has led him to invest in companies with price-to-earnings (PE) ratios lower than 19-times, the stocks averaged 20 per cent return on equity in the five years prior to Mr Buffett's investment but struggled to maintain those levels, averaging 14 per cent when Mr Buffett exited the investment. "Buffett has bought low P/E stocksoutside the US but on some occasions he has overestimated their quality," he said.

Buffett's 3.7 per cent, $500 million stake in Australian insurance firm IAG Group, announced last month, fit the investment criteria, with a P/E of 14-times, an delivering an ROE of 15 per cent, Tevfik said. He also indicated plans to invest in four or five Australian firms, including at least one bank.

Given that Berkshire Hathaway's compound total annual returns have doubled the All Ordinaries and the US S&P 500 index over the past 50 years, Credit Suisse have created a portfolio based on Australian stocks that fit his investment criteria.

The Oracle of Omaha's track record is on buying stocks that have little leverage, and he tends to buy lower beta companies, Mr Tevfik said. They tend to have a history of "solid profitability", growth and are generally large.

The ASX 100 stocks currently held by Mr Tevfik and his team's "Bufferoo" portfolio, which holds a maximum of nine stocks, are Ansell Limited, Challenger Limited, Caltex Australian and Lend Lease. "It is interesting that the financial stock Bufferoo holds is Challenger, not IAG," Mr Tevfik said.

"The portfolio was a buyer of Challenger last year as well."

Credit Suisse analyst Andrew Adams wrote in a note that while IAG had flagged growth opportunities in Asia but its profits from emerging markets to date have been minimal and is unlikely to hit future targets. "The recent market sell-off allows investors to buy these companies that now trade on 14-times P/E down from 16-times just three months ago," he said.

The long-term investment strategy appears to be working in Australia and over a 13-year period the portfolio — which trades once a year on June 30 — has held pace with the broader All Ordinaries and even outperformed in the last three years, he said.


Fairfax Media Management Pty Limited

Document AFNR000020150701eb720001z

OPINION Jul 17 2015 at 5:19 AM Updated Jul 17 2015 at 5:19 AM
Why Warren Buffett can never be replaced by a computer

Algorithms and big data promise perfectly priced investments but human nature should tell you that's never going to happen.


If Warren Buffett could be replaced by a computer investors would abandon, en masse, their efforts to ferret out mispricing in the market, because there wouldn't be any. Reuters
by Robert Shiller

In their new book The Incredible Shrinking Alpha, Larry Swedroe and Andrew Berkin describe an investment environment populated by increasingly sophisticated analysts who rely on big data, powerful computers, and scholarly research. With all this competition, "the hurdles to achieving alpha [returns above a risk-adjusted benchmark – and thus a measure of success in picking individual investments] are getting higher and higher".

That conclusion raises a key question: will alpha eventually go to zero for every imaginable investment strategy? More fundamentally, is the day approaching when, thanks to so many smart people and smarter computers, financial markets really do become perfect, and we can just sit back, relax, and assume that all assets are priced correctly?

This imagined state of affairs might be called the financial singularity, analogous to the hypothetical future technological singularity, when computers replace human intelligence. The financial singularity implies that all investment decisions would be better left to a computer program, because the experts with their algorithms have figured out what drives market outcomes and reduced it to a seamless system.

Many believe that we are almost there. Even legendary investors like Warren Buffett, it is argued, are not really outperforming the market. In a recent paper, "Buffett's Alpha," Andrea Frazzini and David Kabiller of AQR Capital Management and Lasse Pedersen of Copenhagen Business School, conclude that Buffett is not generating significantly positive alpha if one takes account of certain lesser-known risk factors that have weighed heavily in his portfolio. The implication is that Buffett's genius could be replicated by a computer program that incorporates these factors.

If that were true, investors would abandon, en masse, their efforts to ferret out mispricing in the market, because there wouldn't be any. Market participants would rationally assume that every stock price is the true expected present value of future cash flows, with the appropriate rate of discount, and that those cash flows reflect fundamentals that everyone understands the same way. Investors' decisions would diverge only because of differences in their personal situation. For example, an automotive engineer might not buy automotive stocks – and might even short them – as a way to hedge the risk to his or her own particular type of human capital. Indeed, according to a computer crunching big data, this would be an optimal decision.

There is a long-recognised problem with such perfect markets: no one would want to expend any effort to figure out what oscillations in prices mean for the future. Thirty-five years ago, in their classic paper"On the Impossibility of Informationally Efficient Markets," Sanford Grossman and Joseph Stiglitz presented this problem as a paradox: perfectly efficient markets require the effort of smart money to make them so; but if markets were perfect, smart money would give up trying.

The Grossman-Stiglitz conundrum seems less compelling in the financial singularity if we can imagine that computers direct all the investment decisions. Although alpha may be vanishingly small, it still represents enough profit to keep the computers running.

But the real problem with this vision of financial singularity is not the Grossman-Stiglitz conundrum; it is that real-world markets are nowhere close to it. Computer enthusiasts are excited by things like the blockchain used by Bitcoin (covered on an education website called Singularity University, in a section dramatically titled Exponential Finance). But the futurists' financial world bears no resemblance to today's financial world. After all, the financial singularity implies that all prices would be based on such things as optimally projected future corporate profits and the correlation of profits with expected technological innovations and long-term demographic changes. But the smart money hardly ever talks in such ethereal terms.

In this context, it is difficult not to think of China's recent stock-market plunge. News accounts depict hordes of emotional people trading on hunch and superstition. That looks a lot more like reality than all the talk of impending financial singularity.

Markets seem to be driven by stories, as I emphasise in my book Irrational Exuberance. There are stories of great new eras and of looming depressions. There are fundamental stories about technology and declining resources. And there are stories about politics and bizarre conspiracies.

No one knows if these stories are true, but they take on a life of their own. Sometimes they go viral. When one has a heart-to-heart talk with many seemingly rational people, they turn out to have crazy theories. These people influence markets, because all other investors must reckon with them; and their craziness is not going away any time soon.

Maybe Buffett's past investing style can be captured in a trading algorithm today. But that does not necessarily detract from his genius. Indeed, the true source of his success may consist in his understanding of when to abandon one method and devise another.

The idea of financial singularity may seem inspiring; but it is no less illusory than the rational Utopia that inspired generations of central planners. Human judgment, good and bad, will drive investment decisions and financial-market outcomes for the rest of our lives and beyond.

Robert Shiller, a 2013 Nobel laureate in economics, is professor of economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. The third edition of his book Irrational Exuberance has just been published, with a new chapter on the bond market.

AFR Contributor

http://www.bloomberg.com/news/articles/2...tock-slump

Buffett’s Celebration Tempered by 50th Anniversary Stock Slump
by Noah Buhayar
August 5, 2015 — 5:00 PM SGT

Berkshire Hathaway Inc.'s Warren Buffett. Photographer: Daniel Acker/Bloomberg
Recommended



Berkshire Hathaway Inc. shares traded near record highs at the beginning of Warren Buffett’s 50th year running the company. More recently, the stock has begun to sag.
Shares have slumped 5.2 percent since Dec. 31 and are headed for their first annual decline since 2011, even as Buffett pulled off one of the biggest coups of his career last month. By backing H.J. Heinz’s merger with Kraft Foods Group Inc., he now holds a stake valued at about $26 billion, more than twice what he paid.
There’s less to celebrate about some other Berkshire investments and businesses. Buffett’s railroad has had to spend heavily to come back from service delays in 2014. His reinsurance business, a main source of funding for the company, is facing increased competition. And some of his biggest equity investments -- like International Business Machines Corp. and American Express Co. -- have lagged the market.
“We’re talking about a large, diversified portfolio of companies,” said Jim Shanahan, an analyst at Edward Jones. “Some will underperform and some will outperform.”
Over the past five decades, Buffett has built Berkshire into a sprawling operation and amassed one of the best investing records in history. Through 2014, the company’s share price averaged annual gains that were more than double the Standard & Poor’s 500 Index. The equity benchmark is up 1.7 percent this year.
Berkshire’s dozens of subsidiaries include insurers, manufacturers, retailers, electric utilities and the railroad, BNSF. Buffett also oversees a stock portfolio valued at more than $100 billion.
Earnings Outlook
The diversity of those investments could help the company post operating earnings per share of $3,038 when results are released on Friday, according to the estimates of three analysts surveyed by Bloomberg. That’s a 15 percent increase from a year earlier.
Buffett’s favored yardstick -- book value -- could have risen by about 2 percent to around $150,000 a share during the second quarter, according to an estimate from Cliff Gallant, an analyst at Nomura Holdings Inc. The billionaire Berkshire chairman and chief executive officer has said the metric is a good, though understated, proxy for the company’s true worth. Berkshire’s Class A shares closed at $214,150 on Tuesday.
Book value per share will get a boost in the current quarter as Berkshire records a gain on the bet on Kraft and Heinz, said Gallant. The food companies completed their merger in July to create Kraft Heinz Co.
‘He’s Executing’
“It seems like he’s executing,” Gallant said of Buffett. “The stock price doesn’t always follow that.”
Berkshire faces challenges.
Carloads at Buffett’s railroad slipped 0.1 percent in the second quarter from a year earlier. While that’s a narrower decline than at its Western U.S. competitor Union Pacific Corp., some costs have been climbing at BNSF. Buffett pledged to spend $6 billion on upgrades in 2015 following delays last year that were tied to a surge in oil shipments and harsh winter weather.
“Outlays of this magnitude are largely unheard of among railroads,” he wrote in his annual letter to shareholders in February. “Our huge investments will soon lead to a system with greater capacity and much better service. Improved profits should follow.”
Buffett has been less sanguine about the future of Berkshire’s reinsurance operations. For decades, he’s used the premiums held by these businesses until paying claims, called “float,” to fund his stock picks and takeovers. In May, he said the prospects for that business had “turned for the worse” as hedge funds and other investors piled into the industry, driving down the price of coverage.
Insurance Strategy
To counteract that trend, Berkshire has begun to focus on underwriting policies directly for businesses. The company’s reinsurance chief, Ajit Jain, has been overseeing the effort even as he hunts for new deals. In June, Insurance Australia Group Ltd. agreed to cede a fifth of its premiums and risk to Berkshire, as part of a decade-long tie-up. IAG had more than A$9 billion ($6.6 billion) in premium revenue in 2014.
Buffett has less control over the companies in his stock portfolio -- and some of them have been struggling.
He invested almost $11 billion to amass a stake in IBM in 2011. Since then, the computer-services provider has worked to transform itself into a seller of cloud-computing technology and data analytics. Revenue has slipped for 13 straight quarters. IBM shares now trade below the price that Buffett paid to acquire them.
American Express
AmEx, another of Berkshire’s largest stock investments, has plunged about 19 percent this year. It is nearing the end of a partnership with retailer Costco Wholesale Corp., a relationship that accounted for 20 percent of worldwide loans and 8 percent of customer spending.
Berkshire’s cash pile has been growing in recent quarters and stood at a record $63.7 billion at the end of March. While that money is earning almost nothing, long-term shareholders will wait for Buffett to make his next big investment, said Meyer Shields, an analyst at Keefe Bruyette and Woods.
“I don’t think they or their investor base care if it takes another five years for things to be attractively valued,” he said. “Berkshire is very disciplined in terms of what it’s going to pay.”

http://www.cnbc.com/2015/08/10/warren-bu...tiple.html

Berkshire Hathaway in its largest ever public acquisition for precision castparts.

OPINION Aug 11 2015 at 5:30 AM Updated Aug 11 2015 at 6:05 AM

Warren Buffett bets on big buys to boost Berkshire Hathaway

Warren Buffett's appetite for big deals has become more voracious in recent years, as he seeks to deploy a big stockpile of cash swelling on Berkshire's balance sheet. Daniel Acker

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by John Kehoe
Warren Buffett's biggest ever bet, a $US32.5 billion cash bid for aviation parts manufacturer Precision Castparts, demonstrates how his huge investment conglomerate Berkshire Hathaway is becoming increasingly reliant on big acquisitions to try to materially boost profits.

Berkshire, generating $US194 billion in annual revenue, is in effect buying growth to move the dial on its bottom line.

Organic growth or smaller purchases for Berkshire are unlikely to offer the same growth potential for the $US540 billion portfolio manager.

Buffett's appetite for big deals has become more voracious in recent years, as he seeks to deploy a big stockpile of cash swelling on Berkshire's balance sheet.

The buyout trend is in stark contrast to the single Massachusetts textile mill Buffett took over in 1965 when Berkshire was founded.

The takeover of the leading supplier to world's aerospace industry, announced on Monday, was worth $US37.2 billion, including debt.

Portland-based Precision generates annual revenue of $US10 billion and profit of about $US1.5 billion.

Earlier this year, Berkshire pumped $US12 billion into the merger of food giants Kraft and Heinz.

Berkshire five years ago closed a mammoth $US26 billion deal for a controlling stake in Burlington Northern Santa Fe, operator of the US's second-biggest rail network.

In between, Berkshire shelled out billions for electricity distributor NV Energy and chemical company Lubrizol.

VALUATION DILEMMA

Buffett has been cautious on the broader US stock market for some time, admitting at Berkshire's annual meeting in May that stocks appeared fully valued. He has never been a big fan of investing in bonds.

Precision Castparts might be an exception to the valuation dilemma, though the price tag of 18 times forecast earnings does not appear super cheap.

Precision's share price had fallen about 21 per cent over the previous 12 months until Buffett put a rocket under the stock on Monday. Precision shares jumped 19 per cent to about $US231.

Still, the $US235 per share offer from Berkshire, unanimously approved by Precision's board of directors, was below the company's 12-month high.

Buffett turns 85 this month, but when he sniffs a deal, age does not slow him down. Buffet revealed that investment manager Todd Combs presented him the Precision takeover idea for the first time just five weeks ago. Berkshire already owned three per cent of the company, which generates 70 per cent of its revenue comes from aviation.

Combs was one of two lieutenants hired by Berkshire a few years ago to deploy the conglomerate's gigantic cash pile sourced from its insurance operations.

Before the $US32.5 billion acquisition, Berkshire was hoarding a $US66.6 billion cash pile as of June 30.

Buffett has lamented the ultra-low interest rate environment and perhaps feels some of the cash can generate a better return elsewhere.

"Berkshire's huge snowball of cash is constantly melting under the heat of low interest rates and low but constant inflation," says James Harris, a financial analyst and Berkshire shareholder.

"Perhaps earning a 5 per cent return [on Precision], compounding, is better than earning nearly nothing on the cash hoard."

Buffett likes to retain $US20 billion to $US30 billion on hand for a rainy day and the Oracle of Omaha signalled he won't be making any large acquisitions in the foreseeable future. He disclosed the firm was conducting due diligence on a couple of potential smaller acquisitions that were likely to be concluded by around year end.

The Berkshire-Precision deal is the eighth largest M&A deal in the US this year.

The takeover puts the US on track for a record breaking year in mergers and acquisitions, with announced transactions topping $US1.47 trillion so far, according to Dealogic. Buffett has certainly been knee deep in the takeover action.

(10-08-2015, 07:27 PM)kikababoo Wrote: [ -> ]http://www.cnbc.com/2015/08/10/warren-bu...tiple.html

Berkshire Hathaway in its largest ever public acquisition for precision castparts.

One more elephant deal from Mr. Buffett

When public companies mimic private firms
Warren Buffett of Berkshire Hathaway and Jeffrey Bezos of Amazon shun short-term gains for long-term performance

SLOW BURN: An example of a public company that behaves as if it were private is Amazon (left). While the company has grown exponentially over the last 20 years, it has invested heavily, often sacrificing profits in the process. Investors who are bullish on Amazon's stock assert that the investments will one day produce industry-beating returns. 
PHOTO: BLOOMBERG
NOV 7, 20155:50 AM
IT was one of the biggest rebukes of the public markets in recent memory - and it may not be the last. In October, just two years after Dell's management took the company off the stock market to make it a private company, Dell announced one of the biggest technology acquisitions ever.
Being a publicly traded company is often thought crucial for raising large amounts of capital. But Michael S Dell, the founder and chief executive of the company, expects to raise as much as US$40 billion to finance its purchase of EMC, the data storage and software company.
Investors are also throwing money at companies that have never been on the public markets. Uber, the young ride-sharing company, has managed to raise US$8 billion without showing its books to the world, for instance.
In fact, there is evidence that companies are avoiding going public - or like Dell, withdrawing from the public markets - even though the stock market is supposed to provide the lowest cost and most responsive place to raise money.


Currently, 5,303 companies are listed on the US stock exchanges, down 35 per cent from 8,160 companies some 20 years ago, according to data from Weild & Co.
Economists and stock market experts often place much of the blame for the decline on new regulations that have been introduced over the last 20 years. These, they say, increase the costs and burdens of being public for many companies.
But three academics, puzzled by the drop in stock market listings, recently carried out research that suggested another cause: Companies may be avoiding the stock market so they can be free of the short-term pressures that can undermine corporate performance over time.
The paper's authors are John Asker, a professor of economics at the University of California, Los Angeles; Joan Farre-Mensa, an assistant professor at Harvard Business School; and Alexander Ljungqvist, a professor of finance at the New York University Stern School of Business. Their standout finding is that "private firms invest substantially more than public ones on average, holding firm size, industry and investment opportunities constant. This pattern is surprising in light of the fact that a stock market listing gives firms access to cheaper investment capital," the paper states.
The inference is clear. Freed from the obligations of being public - disclosing quarterly results, making earnings projections and dealing with investors' reactions to disappointments - corporate executives may feel they can take the risk of investing more. Ambitious investment projects can bring unexpected hits to earnings and periods of greater uncertainty, the sorts of things that can cause public shareholders to sell now and think later. But a private company can plough ahead, more or less regardless.
The researchers found that private companies not only invest more than public ones, but also that they are more responsive to changes in investment opportunities. Other researchers had reached somewhat similar conclusions. But Asker, Farre-Mensa and Ljungqvist said they were able to go further because they had access to "a rich new database" of private company financial information assembled by the firm Sageworks, which gave them a comprehensive look at how such companies behave.
Still, public companies may not want to talk to their bankers about going private just yet.
For one thing, it may be dangerous to draw too many lessons from recent deals and trends. After Dell went private, its financial performance has hardly been strong. And the ease with which private companies can raise money may just be a temporary phenomenon that goes away when markets become more cautious.
Long-term bent
Also, shielded from the limelight, owners of private companies may treat their firms as personal fiefdoms. And away from the scrutiny that comes with the public markets, young technology firms may be able to play down or cover up flaws in their businesses.
Perhaps more important, there is a third way. A public company can simply behave as if it were private.
Some of the most beloved companies on the stock market try to mimic private firms. Often, this approach requires a chief executive who has a strong long-term bent and could not care less about the ups and downs of public markets. Such executives might of course include well-known figures such as Warren E Buffett of Berkshire Hathaway and Jeffrey P Bezos of Amazon. But analysts say plenty of other executives, often in the less glamorous reaches of corporate America, aim for the long term.
Take Charles Fabrikant, chief executive of Seacor Holdings. Seacor focuses on providing equipment to the offshore oil and gas industries. As the company has navigated many vicious energy cycles since it went public in 1992, its stock has risen more than 800 per cent, compared with nearly 400 per cent for the wider market. It does not give out earnings guidance or hold quarterly conference calls.
"You need to think like a private owner," Mr Fabrikant said in an interview. "You can't make an investment with the expectation that it will produce the returns that you hope for in quarters, or semesters, or sometimes years." Another company off the beaten track is Middleby, based in Elgin, Illinois, whose core business is making ovens for restaurant chains. Its stock is up over 800 per cent in the last 10 years, more than 10 times as much as the market over the same period.
"These guys are the antithesis of 'We've got to hit the number this quarter,'" said C Schon Williams, an analyst at BB&T Capital Markets. "They don't give guidance. It goes back to this being a long-term game." But do public companies that aim for the long term actually outperform other public companies?
Amazon has sat at the centre of this debate for years.
The company has grown exponentially over the last 20 years. It has invested heavily over that period, often sacrificing profits in the process. Investors who are bullish on Amazon's stock assert that the investments will one day produce industry-beating returns, while critics argue that such returns should have materialised by now, given that the company is not exactly young anymore. Amazon is still reporting a relatively meagre amount of net income.
Still, the bulls seem to be gaining the edge. Analysts have a yardstick that they say does more than others to determine the fundamental performance of a company over time. It is free cash flow, or the actual cash generated by the company's operations after subtracting what it spends on investing in its own business.
For the 12 months through the end of September, Amazon's free cash flow totalled US$5.4 billion, a 400 per cent increase from the US$1.07 billion in free cash flow that the company recorded for the 12 months through the end of September 2014. Amazon's free cash flows look weaker if the money spent on lease payments is included. But even with this adjustment, Amazon's cash flows are surging. At the very least, Amazon does not appear to be as profligate as the sceptics say.
Berkshire Hathaway is a big test case for the notion that the long-term approach produces better results.
Buffett is famous for buying companies outright and allowing their existing managers to chart a course for themselves. "Most of our managers are independently wealthy, and it's therefore up to us to create a climate that encourages them to choose working with Berkshire over golfing or fishing," he wrote in Berkshire's latest annual report.
Within the walls of Berkshire, they are theoretically insulated from short-term pressures.
Many companies in the Berkshire stable compete with stand-alone public companies, making some comparisons possible. In 2010, for instance, Berkshire acquired the railroad Burlington Northern Santa Fe. From 2010 to the end of 2014, its operating income grew by 11 per cent, exactly the same as the average rate for five of its US and Canadian peers, according to an analysis by The New York Times.
Burlington Northern's average revenue growth over the same period has been slightly higher than that of the peer group (8 per cent vs. 7 per cent), but its operating profit as a percentage of revenue, or its operating margin, was slightly lower. The margin for the company was 29 per cent, compared with 31 per cent for its peers. Still, Burlington Northern may have the edge, at least for now. Recent railroad traffic figures suggest that it is pulling away from the others this year.
Berkshire's enormous insurance businesses lend themselves to a similar exercise. Geico, the auto insurer, became a wholly owned subsidiary of Berkshire in 1996. But being part of Berkshire may not have made Geico significantly more profitable than some of its closest rivals.
Combined ratio
Analysts measure an insurer's profitability with something called the combined ratio, which measures a company's insurance payouts and its expenses as a percentage of the premiums paid by its customers. The further the ratio is below 100 per cent, the better. Geico's 10-year average combined ratio is 92.9 per cent, according to an analysis by AM Best. That's a very strong result, but the average ratio of Progressive, a rival of Geico, is marginally better at 92.6 per cent, according to AM Best.
Still, as a Berkshire company, Geico has grown faster than many of its rivals to become the second-largest provider of private passenger insurance. And part of Geico's growth is a result of its willingness to spend huge sums on marketing. Its annual advertising bill is well over US$1 billion.
Long-term-focused managers at public companies often have a belief system that helps keep their goals clear and tunes out unhelpful noise. At Berkshire, that comes in the form of "intrinsic value," which Buffett describes as "an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses".
Mr Fabrikant of Seacor has to try to invest wisely in assets whose values can swing wildly through the booms and busts of the energy sector. "It requires patience and understanding potential changes in the market and in technology," he said. "And it requires understanding the current cost of capital and the future cost of capital, and a deep understanding of what it would cost to replace that asset." Even so, Mr Fabrikant would rather not have had to deal with the demands of going public. "If I could do it over, yes, I would be private," he said. NYT

Will it be beneficial to create a topic on this (ie: Public co managed as if Private) for Sg Market?
I'll start with Micro Mechanics. Its CMA unit is an example, IMO, of LT investment. It has been years in making and still in small loss at the moment. But this unit, I reckon, will be the next catalyst for them to scale new high (if successful).

<vested in Micro Mech>
Note to Administrator, if you could help to create new topic, please help to move this as well. Thanks a lot.

Warren Buffett is having an unusually bad year
Alex Rosenberg | @CNBCAlex
9 Hours AgoCNBC.com

[/url]

39

COMMENTSJoin the Discussion

It hasn't been a banner year for the [url=http://www.cnbc.com/warren-buffett/]Oracle of Omaha.
Warren Buffett has seen shares of his Berkshire Hathaway fall more than 11 percent this year. Even worse, Berkshire shares have underperformed the S&P 500 by more than 10 percent.
What makes this highly unusual is that Berkshire famously tends to underperform when the S&P skyrockets and outperform when the stocks as a whole do less well, which makes sense given Buffett's long-term time frame. Indeed, Buffett is well known for instructing investors: "Be fearful when others are greedy and be greedy when others are fearful."
This year, however, the S&P is slightly lower, with a 0.4 percent decline. And while there is still a month and a half left in 2015, it is notable that this would mark the first year that Berkshire A shares have underperformed in a down year for the S&P 500 since 1990. (Readers might note that this excludes 2011, when the S&P fell by less than 0.05 percent.)
[Image: 1447800410_sp_brk_.jpg]
The most striking year of underperformance came in 1999, when Berkshire shares fell 20 percent while the S&P 500 rose by nearly the same amount.
Berkshire stock is the victim of a rough patch for the transportation and industrial businesses Berkshire owns, as well as some unfortunate stock picks. Out of Buffett's biggest stock holdings, IBM and American Express have gotten licked this year, while Wells Fargo and Coca-Colaare roughly flat.
Read MoreBerkshire Hathaway Portfolio Tracker
In addition, the decline in energy prices has hit Buffett hard.
"Berkshire is one of the largest operators of train portfolios, and those trains move oil and coal. As commodity prices have come down, clearly big trains have been impacted," said Macrae Sykes, who follows the stock for Gabelli & Co.
Read MoreThe latest billionaire battle: Ackman v Buffett 
Meanwhile, since valuations are not "depressed," Berkshire has not been able to find particularly exciting things to do with all of the capital its businesses generate, Sykes added.
Buffett has managed to keep himself busy this year, announcing the $37.2 billion acquisition of aerospace supplier Precision Castparts in August. But to Sykes' point, he told CNBC at the time that the deal was expensive by his standards, with a "very high multiple."
Still, Buffett and his Berkshire Hathaway have generated massive outperformance over any long period of time.
[Image: 100873058-alex-rosenberg-silo.60x60.jpg?v=1376942040]
Alex RosenbergProducer

The article has selectively focused on share price, rather than NAV, and only on Class A shares.

I have closely followed BH performance. In 2008, based on NAV, and overall BH performance, is -9.6% vs S&P -31.8%.

The author has distorted the picture.

(a keen follower of BH performance)