Summary
- Warren Buffett has been criticized for failing to "call the bottom".
- However, what Berkshire does is pick winners, not bottom finish.
- The company has now deployed some more capital and there are still some good buys out there.
- Overall, the stock is a buy given its defensive nature and uncertain macroeconomic environment.
Thesis Summary
For the last few months, investors and pundits have been criticizing Warren Buffett for failing to buy at the bottom and, in fact, selling his airline holdings very near to it. Of course, hindsight is 20/20, but what people fail to realize is that Buffett has an investing strategy that is made to succeed no matter what. Berkshire Hathaway Inc. (BRK.B)(BRK.A) seeks to buy quality companies at a good price and that is what it is doing now. For this reason, Berkshire continues to be a strong buy in my book. Below I discuss Berkshire’s latest adds and possible future acquisitions.
Source: Barrons.com
Bottom calling doesn't work
It’s been over three months now since the S&P 500 hit around 2300 points. It seems safe to say that this was the market bottom. Since then, many stocks have rallied past their previous highs, providing many avid investors with double and even triple-digit returns. Warren Buffett has been criticized for two reasons. Firstly, because he failed to “call” the bottom and deploy any capital during that time. Secondly, because he sold his airline holdings very near the market lows.
However, you shouldn’t feel bad if you failed to call the bottom. Why? Because everyone knows this is not a realistic investing strategy. Markets are unpredictable and the truth is no one could have known with certainty when the market was going to start going up instead of down. My investment style relies on dollar-cost averaging, and understanding that lower prices today almost always represent an opportunity in the long term. Warren may have “missed” an opportunity to make a quick buck, but the underlying philosophy and business of Berkshire will make it a quality company for years to come.
Warren Buffett's investment style is simple, yet hard to follow. It requires great analytical skills and, above all, patience. Markets may be able to stay irrational longer than many investors, but they won't outlast Berkshire. The business and portfolio have been built through decades to add value and cash flow even in the hardest of times. The bottom line is, despite stellar market gains, the economy is still very weak, and finding real value is hard, but Buffett is beginning to use the dry powder.
