Warren Buffett, the chairman of Berkshire Hathaway (NYSE:BRK.B), is one of the most revered investors of all time. With a long track record of success and a loyal following, many investors closely watch his moves, which are disclosed in quarterly 13F filings. However, mimicking every decision made by Buffett isn’t always a surefire way to guarantee profits. While his long-term returns are impressive, following his investment strategy blindly may not always lead to the same results for individual investors.
Buffett’s Stellar Long-Term Performance
Under Warren Buffett’s leadership, Berkshire Hathaway has generated incredible long-term returns. From 1965 to 2023, Berkshire’s stock price grew at a compound annual growth rate (CAGR) of 19.8%, nearly double the performance of the S&P 500 (with dividends). This track record of growth propelled Berkshire to a market capitalization of over $1 trillion, making it the first non-tech company to achieve such a milestone.
Despite this remarkable long-term performance, not all of Buffett’s moves have been equally successful. Some of his recent investment decisions, such as reduced buybacks and selling stakes in key companies, have raised eyebrows and questioned whether following Buffett’s investments without question is a sound strategy.
Not All of Warren Buffett’s Moves Are Profitable
Warren Buffett’s humility has always been a key trait of his investment strategy. Despite his success, he is not afraid to admit his mistakes. For example, he has openly acknowledged missing out on opportunities in companies like Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), both of which have significantly outperformed the market in recent years. Buffett also regrets selling his stake in Disney (NYSE:DIS) and admitted to overpaying for Kraft during its merger with Heinz, a mistake that led to Kraft-Heinz (NASDAQ:KHC) becoming one of Berkshire’s underperforming investments.
Perhaps one of Buffett’s biggest mistakes was the $32 billion acquisition of Precision Castparts, which Berkshire had to write down by nearly $10 billion in 2020. Even though Buffett has an impressive track record, these missteps remind us that no investor is immune to errors, especially when managing a portfolio as large as Berkshire Hathaway’s.
The Airline Shares Sell-Off: Another Buffett Mistake?
In early 2020, at the height of the COVID-19 pandemic, Warren Buffett made the decision to sell Berkshire’s stakes in several major U.S. airlines, including American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL). He took a significant loss on these investments, a move that confused many of his followers, given Buffett’s famous mantra of being “greedy when others are fearful.” In hindsight, this decision seemed hasty as the airline industry has since rebounded significantly, leaving many wondering if holding onto those positions would have yielded better results.
Similarly, Buffett sold shares in General Motors (NYSE:GM) in 2022, another decision that hasn’t aged well. Despite Buffett’s conservative approach, these moves indicate that even the “Oracle of Omaha” can make calls that don’t always work out.
Buffett’s Cash Calls: Timing Is Everything
Another area where Warren Buffett’s strategy hasn’t paid off in the short term is his decision to accumulate cash rather than invest. For seven consecutive quarters, Buffett has been a net seller of stocks, even as the markets reached record highs. By June 2024, Berkshire’s cash pile had grown to an unprecedented $277 billion. Historically, Buffett has held large amounts of cash during times of market uncertainty, but in this case, the markets have continued to rally, resulting in missed opportunities for Berkshire.
The last time Buffett was similarly cautious was between 2020 and 2021 when he sold more stocks than he bought. During that period, the S&P 500 saw double-digit gains in both years, meaning Buffett’s decision to stay on the sidelines was costly.
Should You Follow Warren Buffett’s Strategy?
Warren Buffett will undoubtedly go down in history as one of the greatest investors of all time, but blindly following his moves may not always be the best strategy for individual investors. It’s important to note that public filings, like the ones from Berkshire Hathaway, don’t tell the full story. For instance, Buffett’s recent sale of Apple (NASDAQ:AAPL) shares was partly due to tax considerations, which may not apply to most retail investors. Moreover, given the massive size of Berkshire’s holdings in companies like Kraft-Heinz, selling those shares is not as simple as it is for individual investors.
Additionally, Buffett’s preference for avoiding tech stocks, among others, reflects his conservative approach. While this strategy has worked for Berkshire, individual investors with different risk tolerances and time horizons may benefit from diversifying into sectors that Buffett avoids.
Conclusion: The Buffett Lesson
Warren Buffett has proven that consistency and a long-term approach can deliver stellar returns. However, his strategy isn’t infallible, and individual investors should consider their own risk-reward profiles before following his moves. Blindly copying even the most successful investors may not always align with your financial goals. Buffett’s wisdom, rather than his individual trades, is what should guide your investment decisions.
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