Buffett Copycats Navigating Rough Waters

If you’re a Warren Buffett wannabe, it hasn’t been a very good time as of late.

Certain stocks in the Berkshire Hathaway portfolio have taken big hits in recent weeks, and the equity portfolio of the company has taken a beating. Seven of the holdings alone have suffered a loss of more than $5 billion combined – as long as Berkshire Hathaway’s stake in these companies has remained the same since June 30, which is the last disclosure date.

Particularly, Berkshire Hathaway has taken a beating on two of their favorite stocks, Coca-Cola and IBM. Both of these companies have dropped significantly after posting disappointing third-quarter earnings numbers. Buffett’s love of energy stocks hasn’t helped the portfolio much lately either, due to the fact that slumping global oil prices have done damage to the price of energy assets across the board.

For Warren Buffett – third richest man in the world – a few billion dollars worth of unrealized losses is not necessarily something to lose sleep over.

Buffett and Berkshire Hathaway and their ability to ride out short-term gyrations in the market have been one of their overall keys to long-term success as an investor. Contrary to mutual fund managers, Buffett does not need to worry about redemptions that will force him to sell stocks.

But for retail investors, small institutions and fund managers, and others who attempt to follow in Warren Buffett’s footsteps; these losses can be much more difficult to get over.

When asked to comment, Berkshire Hathaway did not respond.

Since June 30, owning 400 million shares of Coke, Berkshire Hathaway is the largest shareholder of the company, and Buffett is the most famous fan of Cherry Coke in history.

“I love Coke, I love the management,” he said back in April during a television interview, when Coke faced an executive compensation plan controversy.

On October 21, shares of the soft drink giant fell 6% after its most recent quarterly profit slump. Since June 30, Coke shares are down by 4.1%, and Berkshire suffers a potential paper loss of $696 million.

IBM, similarly, has dropped 11% since the end of the second quarter, and Berkshire Hathaway owns 70 million shares as of June 30. Much of the decline happened when IBM lowered their 2015 operating earnings target earlier in the week. On paper, since June 30, Berkshire Hathaway has suffered a loss of $1.3 billion in IBM shares.

Doug Kass, short seller, repeatedly said that Coca-Cola and IBM are the weak spots in Buffett’s portfolio.

Kass, who heads up Seabreeze Partners Management in Palm Beach, Florida, in 2013, was named Buffett’s “credentialed bear” during the shareholder meeting. In order to spice up the event, attended by thousands of shareholders of Berkshire Hathaway, Buffett asked Kass to present a bear case against the company, which as we know owns dozens of businesses and sells everything from insurance to ice cream.

“Very few people have the sort of pain threshold and long-term timeframe and risk appetite that Warren Buffett has,” said Kass. “His risk profile is different than a mere mortal.”

Leave a Reply

Your email address will not be published. Required fields are marked *