Is Warren Buffett's performance faltering?

That is what this article in the Economist suggests- and it is not the only one.

Berkshire Hathaway, the firm with which Warren Buffett has been famously identified, has underperformed the S&P 500 in the period 2009-23- the firm has produced an average return of 13 per cent per annum compared to the benchmark's 15 per cent. In the period since 2015, it has produced a total return of 155 per cent compared to the benchmark's 164 per cent, as another article points out.  

Before we start dumping on the fabled Sage of Omaha, it is appropriate to place the firm's underperformance in context as the second article cited above does:

The conglomerate's stock has reached a fresh all-time high in 2024, suggesting that, despite the underperformance relative to the S&P 500 since 2015, the company remains a formidable force in the investment world. Furthermore, Buffett's track record since the 1960s, with average annual returns around 20%, speaks to a legacy of success that few can match. The question of whether Warren Buffett has lost his touch is not new; it has arisen periodically throughout his career, only for Buffett and Berkshire Hathaway to emerge stronger.

The Economist article delves into the reasons why performance has been lacklustre in recent years. Size is part of the problem. On a bigger size, sustaining returns is difficult. But then firms such as Apple and Microsoft that are even bigger have managed to do so. An important reason is that the firm is invested in old economy firms and it appears reluctant to bring technological innovation into those, such as using software to let less risky drivers pay lower premiums in its insurance business. 

Mr Buffett chastises boards and management on various counts but his own corporate governance is little to write home about: his firm discloses the bare minimum, has an aged board and does not have an email address or phone number to which questions can be addressed. When you are performing, nobody bothers. When you don't, people start looking closely at these things.

On a different note, Buffett has often been cited as evidence that a forecast of the efficient market hypothesis is incorrect- he is one manager who has outsmarted the index over several decades. I had a post earlier on how Eugene Fama, the father of the hypothesis, still swears by it.

How would Fama explain a phenomenon such as Buffett and Berkshire Hathaway? Fama has said that Buffett is not just an investor. He is somebody who takes over under-performing businesses and runs them. To see whether the efficient market hypothesis holds for entrepreneurs, Fama says he would have take a large cross-section of businesses and evaluate performance- and there isn't that sort of data. 

Fama sees Buffett as picking up individual businesses every few years and improving their returns. When it comes to running a portfolio, Fama says, Buffett himself has recommended that his wife put her money in an index fund! 

Says Fama, "Buffett is my hero". Shows it's hard to get members of the Chicago school to change their minds.