Weekend Reads for Investors: Berkshire Bears in Hibernation

In the next week, faithful investors from around the world will make their annual pilgrimage to hear from some of the brightest minds in the business. I’m not speaking about the upcoming 67th CFA Institute Annual Conference, at which attendees will hear from a wide range of speakers, including hedge fund manager Cliff Asness, valuation guru Aswath Damodaran, and celebrated statistician Nate Silver. While this gathering in Seattle promises to be chock-full of great ideas (and you can follow the action on the conference blog), it will be competing for attention with Berkshire Hathaway’s annual meeting, affectionately known as “Buffett-palooza.”

Tens of thousands converge on Omaha, Nebraska, at this time each year to hear from Warren Buffett and his longtime partner Charlie Munger. Earlier this week, Buffett announced that he couldn’t find someone with a bearish stance on Berkshire’s stock (BRK/A) to join him on stage, something he started last year, with Doug Kass filling the role of skeptic. A lack of bearish sentiment is typically a cautionary signal for stocks, but Berkshire may prove to be an exception.

In his 49 years at the helm, Buffett, measuring performance as the annual change in book value per share, has underperformed the S&P 500 Index in just 10 years. In his losing years, the average return for the broad market was 25.1%. Buffett is indeed a foul-weather investor, as evidenced by his performance in down markets. During his tenure, the S&P 500 Index has posted a negative return in 11 years, and Buffett has beaten the benchmark by an average of 25.0% in those years. While we don’t advocate following the herd, for those with a cautious stance on stocks, history suggests that a bearish bet on Berkshire may be ill-advised.

Below are some other stories and videos that caught my eye in recent weeks.

Picking Stocks

• Contrarian Ken Heebner on high frequency trading, home builders and the Ukraine crisis. (Wealth Track, video)
• Legg Mason’s Bill Miller thinks conditions for a bad market don’t exist. (CNBC, video)
• “Does Active Management Benefit Endowment Returns?” (Commonfund Institute, PDF)
• Lower correlations mean stock pickers get their turn to shine. (The Wall Street Journal)
• “The ‘Stock Picker’s Market’ Fallacy” (Pension Partners)
• “Busting the Stock Picker’s Market Myth” (Forbes)

Emerging Markets

• Should investors avoid the Russian stock market? (Research Affiliates)
• “Investing in China May Just Get Easier” (Enterprising Investor)
• Eaton Vance’s Kathleen Gaffney sees opportunity in emerging markets. (Advisor Perspectives)
• The yield curve suggests caution on emerging markets. (Richard Bernstein Advisors, PDF)

Valuation Matters

• How can Yahoo be worth less than zero? (Bloomberg)
• Is AirBnB really worth more than Hyatt? (Points and Figures)
• Just what is Alibaba really worth? (Financial Times)

Investment Bubbles

• “The Potential Bubble the Federal Reserve Cares Most About” (FiveThirtyEight)
• David Stockman sees another housing fiasco in the works. (Contra Corner)
• “If a Bubble Bursts in Palo Alto, Does It Make a Sound?” (The New York Times)

New Issues

• The profitless start-up model and the future of commerce. (New York Magazine)
• Felix Salmon on the most expensive lottery ticket in the world. (Reuters)

Pension Problems

• According to Bridgewater Associates, 85% of public pensions could fail in 30 years. (CNBC)

Activists Angle

• The rise of a kinder, gentler shareholder activism. (Institutional Investor)

Innovation

• Graphene, the material of tomorrow. (The New York Times)

The Lighter Side

• “How Dodgeball Became America’s Most Demonized Sport” (Priceonomics)

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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