Has Buffett really lost his edge?

The Oracle of Omaha hasn't beaten the market in a while, critics note. Defenders say he's playing the long game.

By MSN Money Partner Apr 8, 2014 3:33PM
Caption: Billionaire investor Warren Buffett
Credit: © Nati Harnik/APBy William Watts, MarketWatch

Is Warren Buffett really losing his mojo? 


That's the assertion behind a weekend New York Times column by Jeff Sommer keying off a statistical analysis by statistician Salil Mehta that finds Buffett (pictured), while having enjoyed a stellar run over the past nearly half-century, isn't doing so hot recently.


The study finds that while Buffett has produced an impressive dose of alpha -- the ability to outperform the market without adding risk -- over several decades, his more recent performance "isn't impressive at all," Sommer writes. Read a related blog post by Mehta here.


For four of the past five years, Sommer recounts, citing the analysis, Buffett has underperformed the typical, no-frills Standard & Poor's 500 Index ($INX) fund. In fact, he's done "so much worse that it's unlikely to be a matter of a string of bad luck. Mr. Buffett has begun to behave like an investor with no alpha at all," Sommer writes.


Sommer and Mehta both take pains to emphasize how impressive and, perhaps more importantly, how rare Buffett's long-term track record has been. Buffett from 1965 through the end of 2013 outperformed the S&P 500, including dividends, by 9.9 percentage points, annualized. According to Mehta, that puts Buffett in a group amounting to less than 1 percent of the total investor population statistically likely to have been able to beat the market over a period of 45 to 50 years.


At the same time, Sommer notes, the analysis finds that there's only a 3 percent chance that Buffett's recent underperformance is the result of bad luck.


Buffett's defenders argue that while there are many useful observations in Mehta's analysis, it doesn't mean Buffett has lost his edge.


Michael Ide at value-investing blog ValueWalk argues that Buffett's long-term strategy historically earns less when the market soars and loses less when it falls, leaving it to come out ahead on an annualized basis over nearly 50 years. (A point made by Buffett in his last shareholder letter and acknowledged by Sommer and Mehta).


Eamonn Fingleton, writing at Forbes, argues that Mehta is missing an important point. While the share price of Berkshire Hathaway (BRK.A) rose 84 percent from end-2008 to end-2013 versus a 104 percent rise by the S&P 500, the more important measure is Berkshire's profit performance, which has risen 268 percent on a per-share basis.


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36Comments
Apr 8, 2014 3:57PM
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Anyone can look like a genius when stocks are going up 20% year after year.   Let's see how smart everyone appears when the bubble bursts... again...
Apr 8, 2014 4:04PM
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Everyone loses in a bear market.  Amazing how complacent people can get after a few years of shooting fish in a barrell.
Apr 8, 2014 6:00PM
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Warren Buffett made $37 million dollars a day last year, he's worth $62 billion. Clearly Buffett isn't interested in taking risks, but is content with his wise investments and steady growth. Only a fool would think he doesn't know exactly what doing.
Apr 8, 2014 4:41PM
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Sometimes I wonder if people have just woken up from a long sleep

or if they're fresh out of High School and this is the first time reading the news...


This ant his first rodeo...


This is just an article some jackass wrote to drag you into MSN..

Apr 8, 2014 4:38PM
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You'll see how much of the edge Buffett still has next time there's a correction.
Apr 8, 2014 4:28PM
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Uncle Warren has forgotton more about investing then the yahoo's in this article.....end of story.

Apr 8, 2014 4:10PM
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He lost his edge as soon as he started supporting Obama and his policies.  Pretty easy to see the correlation.  
Apr 8, 2014 4:30PM
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Is Warren Buffett really losing his mojo?

 

LOL when he drops out of the top ten for five years I'll worry myself sick about it.

Apr 8, 2014 9:28PM
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I think he'll be okay so don't spend a lot of your time worrying about him!
Apr 8, 2014 6:20PM
Apr 9, 2014 9:28AM
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Wow, even with all the underhanded deals he has done he still is underperforming?
Apr 8, 2014 5:56PM
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More ammo for the index crowd like myself, although I have great respect for Buffet.
Apr 8, 2014 11:17PM
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Buffets the man.  Hope his purchase of LifeAnt is big for the bottom line, and hope this happy grandfather continues to prosper!
Apr 9, 2014 7:07AM
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I wonder how he would do if he were starting out today compared to when he did start? 
Apr 8, 2014 5:39PM
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I'm playing the long game too. That way, I don't need results.
Apr 8, 2014 9:05PM
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You have to wonder when he's investing in big oil companies and dirty Canadian tar sands.  Is this really the way of the future?
Apr 9, 2014 9:51AM
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Never quite understood why he was such a big supporter of Obama. Rich folks don't normally like democrats like Obama. They have a tendency to lean toward republicans. Oh I forgot the celebs in Hollywood are rich, but, they live in a much different world from reality than most Americans do. They are ready to jump on any band wagon that is liberal. Celebs, illegal aliens, young adults and college students and the non-working class supported him. Maybe Buffet with his billions and help out our incompetent government with their debt woes.
Apr 8, 2014 9:07PM
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If he was bullish on Bitcoin he could get it back.  ;)


Apr 9, 2014 11:55AM
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I've mentioned this and said this about Buffet for a few years also...

I have great respect for Warren Buffet and what he has accomplished over his life time..


He and Charlie Munger, his business partner, along with others and BERK, have taken financial investing to a whole different level...

There are only a handful of others that have done as well.

Over the last few years, they have become a little complacent and been off their game some.

At his age, in his mid 80's and Munger older then that, they have slowed down and are not as aggressive as he or BERK have been in past. 


Buffet and/or BERK are grooming a couple new guys, to possibly take over the day to day operations? (Todd and Todd)..Giving them a free'er hand in investing some of the assets of BERK.

There is also one woman that is involved at higher levels, (can't remember name).

I think he is ready to take a bigger role in retirement, and step back a little to relax the rest of his life....And he is thinking ahead and knows it too.

Apr 8, 2014 5:55PM
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More ammo for the index crows like myself, although I have great respect for Buffet.
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