Connect with us

Investment

The truth about Warren Buffett’s investment track record : Morning Brief – Yahoo Canada Finance

Published

 on


Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Monday, March 1, 2021

Warren Buffett has had years of underperformance and a lot of bad stock picks

Warren Buffett, the billionaire head of Berkshire Hathaway (BRK-A, BRK-B), will probably go down as the greatest investor in history.

For more than half a century, he’s been responsible for the performance of Berkshire and its legendary stock portfolio, which have long track records of market-beating returns.

But here’s what every serious investor needs to know about Buffett: despite above-average performance, there have been many years Berkshire underperformed the market and there have been many individual stock trades that have lost mountains of money.

Long-term outperformance comes with many years of underperformance

Warren Buffett’s annual letter to Berkshire shareholders was released on Saturday, and as usual the first page compares the annual performance of Berkshire against that of the S&P 500 (^GSPC) since 1965.*

Berkshire shares have seen an average annual return of 20.0% compared to the S&P 500’s 10.2% gain during that period.

But as you can see from the individual data points, there are many years when the S&P outperformed Berkshire.

A good long-term investment strategy will not produce desired returns year in and year out. Rather, it’ll make progress toward some long-term goal over time as fat years more than offset lean years.

“Whatever today’s figures, Charlie Munger, my long-time partner, and I firmly believe that, over time, Berkshire’s capital gains from its investment holdings will be substantial,” Buffett wrote on Saturday.

Furthermore, it’s worth noting that neither Berkshire nor the S&P saw many years where they delivered an average return. Most years either saw massive gains or very disappointing performance. Average almost never happens in markets.

Great stock pickers pick a lot of losers

And just because Buffett may be one of the greatest stock pickers in history doesn’t mean all of his stock picks have been winners over time.

Just a quick glance at Berkshire’s current top 15 stock investments reveals plenty of positions that are held below cost (i.e. they’ve lost money).

Berkshire's top 15 equity holdings includes winners and losers. (Berkshire Hathaway)

Berkshire’s top 15 equity holdings includes winners and losers. (Berkshire Hathaway)

To his credit, few people are more vocal about Buffett’s mistakes than Buffett himself.

In 2020, Berkshire booked a $9.8 billion write-down on those assets. One massive “mistake”he discussed in his annual letter was Precision Castparts (PCC), a once publicly-traded company that Berkshire acquired outright in 2016 in a $37 billion deal.

“I paid too much for the company,” Buffett wrote. “I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business.”

“PCC is far from my first error of that sort,” he added. “But it’s a big one.”

It’s not hard to find times Buffett lost money on a trade or missed out on a big opportunity. Just a year ago, Berkshire dumped airline stocks near their lows just before they roared back along with the other reopening trades.

But a successful investor shouldn’t be judged by his or her mistakes. Rather, they should be judged by the degree to which they are able to achieve their long-term goals.

This goes for all investors who will repeatedly buy too late, sell too early, and miss out on big opportunities that become obvious in hindsight.

So if you’re making a lot of mistakes but have a sound strategy and the discipline to stick to it during periods of underperformance, then maybe you too can be as imperfectly successful as Warren Buffett.

*Since 2019, Buffett has presented Berkshire’s performance as measured by market value. Prior to that, it was book value. Buffett made the change because he felt market value was going to better reflect the performance of the company. For our purposes, all you need to know is that both Berkshire’s book value and market value have smoked the S&P 500 over that half-century.

By Sam Ro, managing editor. Follow him at @SamRo

What to know today

Economy

  • 9:45 a.m. ET: Markit US Manufacturing PMI, February final (58.5 expected, 58.5 in prior print)

  • 10:00 a.m. ET: Construction spending month-over-month, January, (0.8% expected, 1.0% in December)

  • 10:00 a.m. ET: ISM Manufacturing index, February (58.6 expected, 58.7 in January)

ALSO: February jobs report, Zoom earnings: What to know in the week ahead

Earnings

Pre-market

Post-market

  • 4:05 p.m. ET: Zoom Video Communications (ZM) is expected to report adjusted earnings of 79 cents per share on revenue of $811.04 million

  • 4:05 p.m. ET: Novavax (NVAX) is expected to report an adjusted loss of $2.24 per share on revenue of $202.60 million

  • 4:05 p.m. ET: Nio (NIO) is expected to report an adjusted loss of $3.77 per share on revenue of $16.38 billion

  • After market close: Clover Health Investments (CLOV) is expected to report an adjusted loss of 86 cents per share on revenue of $167.00 million

Top News

J&J’s COVID-19 shot gets CDC panel backing [Reuters]

European stocks climb higher as bond markets stabilize [Yahoo Finance UK]

House passes Biden’s $1.9 trillion relief package including $1,400 stimulus checks [Yahoo Money]

Rocket Lab nears merger deal with a SPAC to go public: WSJ [Reuters]

Yahoo Finance Highlights

Airbnb CEO Brian Chesky: ‘We’ve seen a paradigm shift in how people search for travel’

Certain pockets of America are feeling a ‘disproportionate impact’ from the coronavirus pandemic

Arby’s gives fish sandwich a limited menu run, trolling its competition as fast-food wars heat up

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

Find live stock market quotes and the latest business and finance news

For tutorials and information on investing and trading stocks, check out Cashay

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

World's Biggest Wealth Fund Makes $1.6 Billion Wind Investment – BNN

Published

 on


(Bloomberg) — Norway’s $1.3 trillion wealth fund has made its first investment in unlisted renewable-energy infrastructure since being given the go-ahead to move into the asset class.

The world’s biggest sovereign investment vehicle said on Wednesday it will buy 50% of the 752 megawatt Borssele 1 & 2 Offshore Wind Farm from Orsted A/S of Denmark. The deal is worth 1.375 billion euros, or about $1.6 billion, it said.

Norway’s wealth fund has been looking for such assets to purchase since getting a mandate to start buying in 2019. But as recently as January, Chief Executive Officer Nicolai Tangen said it was proving hard to find reasonably priced targets.

“We are excited to have made our first unlisted investment in renewable energy infrastructure, and we look forward to working alongside Orsted on delivering green energy to Dutch households,” Mie Holstad, chief real assets officer at the wealth fund, said in a statement.

Strategy Update

The announcement coincided with a strategy update by the fund, in which it signaled it will apply a more active approach to its investment strategy. That includes a goal of becoming a global leader in sustainable investing.

Tangen, a former hedge-fund boss who’s been running the giant sovereign investment vehicle since September, has stepped up the Oslo-based fund’s reliance on external asset managers and made environmental, social and governance goals a cornerstone of his focus. He wants to rely more on technology, including artificial intelligence, and plans to expose his portfolio managers to the same kind of training regimens that help shape top athletes.

In Wednesday’s strategy update, the fund said it will “emphasize specific, delegated active strategies and have less emphasis on allocation or top-down positioning.”

As the world’s biggest stock investor, the Norwegian wealth fund’s “knowledge of our largest company investments helps us achieve the highest possible return after costs,” it said. “It improves risk management and enables us to fulfill our ownership role. We believe our active management improves our ability to be a responsible investor.”

The fund, which generated $123 billion in returns last year, used a previous strategy update to shift its equity exposure toward U.S. stocks and away from Europe. Much of last year’s performance was driven by the fund’s holdings of U.S. technology stocks.

The fund follows a benchmark that allocates about 70% to stocks and the rest to fixed income. It also invests in real estate and was recently given a mandate to start buying renewable infrastructure.

The sovereign wealth fund, managed by a unit of the central bank, was created in the 1990s to invest Norway’s oil and gas revenues abroad, initially to prevent the domestic economy from overheating. It owns about 1.5% of global stocks.

The fund said the goal is to become a global leader in responsible investment, partly by further integrating ESG data into its investment process.

©2021 Bloomberg L.P.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

Digital investments correlate to financial success – The 21st Century Supply Chain – Perspectives on Innovative

Published

 on


Executives live daily with a daunting dual challenge. One part is the need to manage the business through steady-state operations and times of disruption. The other is to create value for shareholders through financial excellence and growth.

At the intersection of these two parts lies the digitalization of supply chain. Through digital transformation, supply chain leaders can begin to develop the capabilities that are already needed to manage disruption, as well as those that will help overcome known obstacles, such as data availability and quality. Layering on top of data is information and insight, which are critical to ensuring that those in supply chain are making the decisions that matter most to the business.

The operational opportunities are evident, so the rationale behind the investment is clear. However, that only solves one part of the executive’s dual challenge. Quantifying the value created through financial excellence has been more difficult, but recent research from Professor Morgan Swink of Texas Christian University now shows the correlation between investing in digital transformation and delivering financial success.

Kinaxis customers outperformed during the pandemic

Using quarterly financial statements for 48 publicly held, North American companies that use Kinaxis for their supply chain planning, Professor Swink conducted what is known as a difference in differences analysis for all of 2019 and the first three quarters of 2020. In that analysis, the 48 companies represented those who have already begun their digital transformation against industry averages for each respective vertical over the corresponding period. Furthermore, the analysis was performed as a pre/post event comparison based upon the declaration of COVID-19 as a global pandemic in Q1 2020.

While industry averages showed declines after the pandemic declaration in return on assets (ROA), return on sales (ROS) and return on invested capital (ROIC), the Kinaxis users all delivered improvements when compared to the pre-pandemic performance.

“These data are very strong. I was quite surprised at the level of positivity in these findings,” Professor Swink said upon sharing his findings. The results were so impressive that among the initial six financial metrics compared, the group of 48 Kinaxis customers, representing the digitally transformed, outperformed their industry averages across the board.

The academically rigorous, statistically significant data shows that while industry averages showed declines after the pandemic declaration in return on assets (ROA), return on sales (ROS) and return on invested capital (ROIC), the Kinaxis users all delivered improvements when compared to the pre-pandemic performance. The largest gap occurred for return on sales, which acts as a measure of operational efficiency, where the Kinaxis group improved by more than 1.5%, while the industry declined by more than 0.5%, leading to an overall performance gap of more than 2%. Costs, as a percentage of revenue, also were an advantage for the group of 48 Kinaxis users as both costs of goods sold and sales, general and administrative costs decreased while industry averages either declined slightly or grew.

Translate supply chain success into the CFO’s main metrics

With an impressive array of data, like the research findings, it becomes critical that supply chain leaders be able to convey the right information to the right people. In the case of what matters most to CFO’s, Professor Swink says, “The two things that every CFO cares about are profit and growth. And from the CFOs perspective, they’re looking at ways to invest money to drive profit and growth.”  

Therein lies a significant opportunity for supply chains because they have historically struggled with translating operational capabilities into financial success. This carries over to digital transformation, as well. In both cases, the benefits are typically stated in the terms of those desiring the investment, as opposed to the metrics of whomever is making the decision. As Professor Swink stated, “You need to learn what those metrics are and be able to position your proposal in that language just like the other people who are competing for those funds.”

Flow chart connecting digital capabilities to financial outcomes
Translate digital transformation outcomes into meaningful impacts for decision makers, for example, aligning supply chain capabilities to financial outcomes.

Once the metrics are identified, begin to understand how operational capabilities work as input drivers for them. For example, increased visibility is highly desirable so that supply chains can sense disruptions as it is happening and respond immediately. That alone is a tremendous benefit and it can be tied to financial outcomes such as reduced inventory and cash buffers, improved capacity utilization and lower cost resolution of demand-supply mismatches.

Taking it a step further, the improvements in return on invested capital, and even return on assets, can then be tracked as digitally enabled capabilities are now linked to these financial performance measures. By doing so, the “why an investment is needed” aligns with what it means to the decision maker.

This creates a pivot point for supply chains as Professor Swink suggests that practitioners must be able “to relate structural choices, policies, technology investments, and training and labor investments to the kinds of KPIs that show up on income statements and balance sheets.” This is crucial because “if we really want to speak the language of the CFO we must think beyond those kind of specific operational metrics to think about how our choices affect these larger outcomes.”

To hear more about Professor Swink’s research, watch his on-demand webinar, Speak your CFO’s language – Managing risk and opportunity in supply chains.

Watch the on-demand webinar, "Speak your CFO's language - Managing risk and opportunity in supply chains"

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

CI Financial and industry veterans co-launch real estate investment firm – The Globe and Mail

Published

 on


CI Financial CEO Kurt MacAlpine in downtown Toronto on Dec. 20, 2019. Over the past 18 months, Mr. MacAlpine has been rapidly expanding CI through acquisitions in its wealth management business.

Tijana Martin/The Globe and Mail

CI Financial Inc. is making its first foray into the private real estate sector with a joint venture interest in Axia Real Assets LP, a newly formed alternative investment manager focusing on global real estate and infrastructure.

CI announced the new venture on Tuesday along with industry veterans and Axia co-founders Kelsey Boland, Darrell Shipp, Greg Stevenson and Joshua Varghese, a former CI portfolio manager.

No financial details were released by either company, but Axia will be independently operated and managed by its four partners. Prior to the deal, CI had only stepped into real assets by offering larger institutional investors access to private real estate funds and private equity and credit.

Story continues below advertisement

The new venture will now allow retail investors access to private real estate opportunities that are typically hard to access, said Mr. Varghese, who managed a multibillion-dollar portfolio of global real estate equities at CI Global Asset Management for more than a decade.

Over the past 18 months, CI chief executive officer Kurt MacAlpine has been rapidly expanding CI through acquisitions in its wealth management business, as well as boosting its alternative investment arm to include alternative exchange-traded funds, cryptocurrencies and private-fixed income.

“The products people are buying today are very different from what they bought 10 years ago and they will be different five years from now,” Mr. MacAlpine said in an interview. “We are trying to be relevant to wherever Canadians want to invest – and today that includes real assets.”

With more than $3.7-billion in liquid alternative funds, CI offers retail investors access to publicly listed real estate investments through mutual funds and ETFs – as well as a private real estate fund for accredited investors.

Mr. MacAlpine said along with the growth of CI’s wealth management business, which has doubled its assets under management compared with a year ago, “the demand for both liquid – and illiquid – real estate has also increased from both institutional and retail investors.”

Rather than expand through acquisition, Mr. MacAlpine spent several months last year discussing the new joint venture with Mr. Varghese, who left his role at CI last November to start building Axia.

Mr. Varghese was joined by several former Slate Asset Management executives, including Mr. Stevenson who was the former CEO of the Slate Retail real estate investment trust, which invested in U.S. retail properties anchored by grocery stores.

Story continues below advertisement

“Right now what we are seeing is a lot of the interesting opportunities in real estate that are based on the emergence of the new economy – whether it’s e-commerce warehouses, grocery stores, or data centres – and are hard to access for a lot of investors, both retail and institutional,” Mr. Stevenson said in an interview.

“As investors continue to diversify their portfolios to accumulate long-term wealth, we believe the opportunities for global real assets are significant.”

In addition to grocery-anchored real estate, which includes big-box grocery stores, other areas of interest to the firm, said Mr. Varghese, include life-science facilities, cold-storage facilities and single-family rental homes.

Mr. Varghese declined to comment on the company’s initial investment capital, but said he expects to launch the first set of investment products this summer.

“We think because of digitization and because of what that is going to do to enable societal change, we are going to see bigger changes in the next two decades than we saw in the last two decades,” Mr. Varghese said.

“When you are investing in real estate – which is a long-term asset class – you have to have a laser focus view on what those changes will look like and [the areas we are looking] will provide our investors access to the types of real estate that are going to benefit from the new economy.”

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Let’s block ads! (Why?)



Source link

Continue Reading

Trending