Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 392

Win some, lose some: Buffett's 2020 scorecard

In a tough year for most investors, even Warren Buffett had a mixed year by his standards. The share price of his Berkshire Hathaway (BRK.B) investment company inched forward by just 2.5%, lagging major US benchmarks like the S&P 500.

Top holding Apple (AAPL) had a stellar year and an investment in data IPO Snowflake (SNOW) proved an immediate hit. But there were a number of misses too, with investments in US banks and financial services proving costly.

Let's take a closer look at his portfolio:

What worked

We covered the Sage of Omaha from a range of angles last year: Morningstar columnist John Rekenthaler analysed Buffett’s predictive powers, in December we dug into Berkshire Hathaway’s portfolio and in June Susan Dziubinski picked out three potential buys from the portfolio following the spring 2020 crash.

Looking in-depth at the portfolio, there were some strong performances from the likes of Apple and Amazon (AMZN), whose shares were 70% higher at the end of the year. But the standout performer in 2020 was new holding Snowflake, which floated in September at $120 and closed the year 134% higher at $281. The investment was particularly notable as value investor Buffett typically rejects the 'hooplah' associated with IPOs. Indeed, the last time he bought a newly listed company was Ford motor company in 1956.

So what were the biggest changes to the Buffett investment portfolio in 2020?

Healthcare was one of the boom areas of 2020 so it was no surprise to see an increased weighting to these stocks last year. In the third quarter of 2020, the portfolio added to positions in Abbvie (ABBV), Merck (MRK) and Bristol Myers Squibb (BMY) - the trio now accounts for 2.4% of the portfolio's assets between them.

Of these, only Abbvie posted a positive return for the year, up 20%. Merck, meanwhile, is one of four companies in the portfolio rated as undervalued by Morningstar analysts with a 4-star rating (the others are food giant Kraft Heinz (KHC), bank Wells Fargo (WFC), which fell nearly 45% last year, and US car firm General Motors (GM)). The position in Wells Fargo was reduced in 2020, as were stakes in Bank of New York Mellon, Visa, Mastercard and US Bancorp.

Merck is also one of two companies in the portfolio's top 20 positions to have a wide economic moat, an important concept gauging competitive advantage for Warren Buffett and Morningstar. General Motors and Kraft Heinz are the only stocks in the list with no economic moat, while Snowflake does not yet have a Morningstar rating.

The trouble with Berkshire

How do you measure Warren Buffett’s performance? A conventional investment portfolio with 50% exposure to Apple would have done very well in 2020. The average share price gain for the biggest holdings in the portfolio is just below 20% (see table), which beats the S&P 500’s gain of 15% for last year.

But things aren’t that simple: Berkshire Hathaway has many facets and while the investment portfolio gains investor attention because of Buffett’s status, it’s also part of a much wider empire.

Berkshire Hathaway Energy and its railway subsidiary BNSF, for example, were hit hard in 2020. The manufacturing, services and retail (MSR) arm, with holdings in metalworking companies and aircraft parts suppliers, has also been damaged by the pandemic. And exposure to insurance has weighed on performance, with much higher payouts last year in the industry as a whole.

But Berkshire Hathaway B shares are now undervalued, according to Morningstar analysts, and retains its wide economic moat. The company could come under pressure to return more of its cash mountain to shareholders this year after a lacklustre 2020 in share price terms.

Berkshire is not easily compared with an index or a conventional investment fund. While the Berkshire Hathaway share price barely moved the needle last year, Morningstar analyst Amy Arnott says the Buffett magic keeps retail shareholders loyal:

“The legions of investors who still count on it as a quasi-fund for their life savings likely aren’t complaining.” 

Now 90, Buffett has handed the running of his equity portfolio to former hedge fund managers Todd Combs and Ted Weschler, who run $30 billion between them. After the portfolio’s surprise (and highly lucrative) punt on Snowflake towards the end of last year, Berkshire investors could see further unexpected developments this year. And with value investing making a tentative comeback and the real economy recovering, these conditions could be more favourable to Buffett’s approach of buying unloved stocks.

 

James Gard is content editor for Morningstar.co.uk. This article is general information and does not consider the circumstances of any investor. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

Register for a free trial of Morningstar Premium on the link below, including the portfolio management service, Sharesight.


Try Morningstar Premium for free


 

RELATED ARTICLES

Is your portfolio too heavy on technology stocks?

Why it's a frothy market but not a bubble

Buffett's meeting takeaway: extreme caution

banner

Most viewed in recent weeks

$100 billion! Five reasons investors are flocking to ETFs

It's not official, but Australian ETFs are clicking over $100 billion right now. It's a remarkable rise, leaving the traditional rivals, the Listed Investment Companies, in their dust. Why are they so popular?

Invest in Australian value stocks before it is too late

By now, we know 'growth' stocks have outperformed 'value' for many years and investors look to the future, but there are good reasons why the switch is on, especially as value companies emerge from the pandemic.  

A close look at retiree fears and expectations

Half of Australians retire early due to unexpected circumstances and within timeframes they did not choose, and two-thirds of pre-retirees worry about funding their retirement. But neither are the greatest fear in retirement.

Minister Jane Hume on SMSFs and superannuation reform

Senator Jane Hume presented at the SMSFA conference this week, and we reproduce the full transcript as a guide to what the Government is thinking on superannuation reforms as we head into the next election.

Taxing the ‘rich’: the potential tax consequences of inequality

At some point, politicians will debate how to reduce the national debt and implement measures aimed at simultaneously easing budget pressures while reducing the gap between rich and poor. Investors should be ready.

Welcome to Firstlinks Edition 392

When we wrote about Robinhood and Reddit investors in June last year, it was not expected that their activities would ramp up to another extreme level. Fuelled by stimulus cheques and social media stories of instant wealth, thousands of new participants are speculating on stocks in a way the market rarely sees.

  • 28 January 2021

Latest Updates

Superannuation

Hume and Frydenberg reset super with two buzz words

The solutions to retirement problems are obvious. All we need are 'efficiency' and 'flexibility'. Learn what these two words mean and the future of superannuation policy is clear. Just don't tell Paul Keating.

Investment strategies

How do women really invest?

It is often said that female investors are more risk-averse than males, but a closer look at the data suggest that income - rather than gender alone - may be the real determinant of women's investing choices.

Latest from Morningstar

Five lessons from the 'Witch' of Wall Street

Immersed in the business and finance worlds at an early age, Hetty Green became one of the most successful investors of all time. Her story shows that the best advice is often timeless.

Investment strategies

Why it's a frothy market but not a bubble

There are pockets of bubble pricing in some assets that can pop at any time, but overall, valuations are frothy but prices of most companies can be sustained if not hit by rising bond rates.

Investment strategies

Five factors driving the great Australian recovery

Australia’s economic recovery is expected to be strong in 2021. It may appear the local economy is lagging other countries as they recover but that is only because we are not starting from such a low base.

Fixed interest

How bonds may temper equity market disappointment

Equity valuations are lofty, but long bond rates have now returned to levels before the pandemic crisis. In a balanced portfolio, long bonds now provide more opportunity to cushion the volatility of equities.

Shares

Will rising bond rates hit your share portfolio?

After a strong rally since March 2020, markets are increasingly worrying about the threat of inflation and higher interest rates. Ironically, it might be at a time of strong economic growth which benefits companies.

Gold

10 key takeaways on gold, Bitcoin and the Elon effect

The rise of the Bitcoin price coinciding with a pullback in the gold price is leading commentators to argue the precious metal is being usurped by its purported digital counterpart. There's a long way to go.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.