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

Three key takeaways from Buffett's annual letter

Is your portfolio too heavy on technology stocks?

Why it's a frothy market but not a bubble

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Latest Updates

Superannuation

'It’s your money' schemes transfer super from young to old

With the Coalition losing the 2022 election, its policy to allow young people to access super goes back on the shelf. But lowering the downsizer age to 55 was supported by Labor. Check the merits of both policies.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.

Superannuation

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Shares

Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.

Economy

Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.

Sponsors

Alliances

© 2022 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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.