US billionaire Warren Buffett is the most famous investor in the world but even he’s not immune to criticism. A couple of years ago, there were suggestions that the great man had finally lost his touch.
Warren Buffett is a value investor, who built his fortune by targeting solid companies with reliable revenues that had fallen out of fashion. This allowed him to buy their stock on the cheap, then sit back, reinvest his dividends, and wait for them to swing back into favour.
Beating the market again
During the US tech growth frenzy, value fell out of favour and so did Buffett. Critics had a field day when shares in his Berkshire Hathaway company crashed more than 14% in the first six months of 2020, while stocks like Apple and Amazon soared. The same happened during the dotcom boom, when Buffett was widely criticised for shunning tech stocks. Then he was indicated when they crashed in March 2000.
Now he’s been vindicated again, as tech falls and value swings back into favour. Nobody could accuse Warren Buffett of failing to stick with his style, and once again this has seen him through tricky times.
Investment platform AJ Bell has just published its Investor Strategy League, which calculates the performance of 27 different investment strategies, ranked by their one- and 10-year performances.
Top of the chart over 10 years was Bitcoin, with a total return of 162,981.8%. Yet over the last year it ranked 27th, dropping 60%. Next best performer over 10 years was global technology, up 466.3%. Over the last year it ranked 26th, down 27.8%.
That’s hardly surprising. Bitcoin and tech had a crazy decade, but now the party is over. Warren Buffett, by contrast, smashed the market over both 10 years and the last 12 months.
Berkshire Hathaway is a long-term winner
Berkshire Hathaway was third-best performer over 10 years with a hugely impressive total return of 369.7%. It beat everything from the world momentum index to global passives, ESG, contrarians, bargain hunters and gold.
Berkshire went one better over the last 12 months, coming in second place after rising 16.3%, a great return in what was a tough year for markets. It was narrowly beaten only by AJ Bell’s ‘bargain hunters’ strategy, which squeaked ahead with 16.4%.
So what can I learn from this for my own investment portfolio? Obviously I don’t have Warren Buffett’s skills (or money), but like many on The Motley Fool, I also like to buy undervalued dividend-paying blue-chips to hold for the long term.
I had my doubts during the tech boom, but now I can see that the strategy has held good. The future could be even brighter. I feel that Bitcoin and tech are highly unlikely to be the best performers over the next decade. Both were one-offs.
Warren Buffett is also a one-off, but in a different way. His strategy works again and again, and that’s why I’m applying it to my own humble portfolio. It’s how I plan to build the wealth and income I need to enjoy a comfortable retirement. I consider myself in good company.