The famous investor had a quiet quarter, without major changes in his portfolio. His main movements were the following: he left Verizon Communications; added participation in Apple (+0.4%), Chevron (+1.4%) and Occidental Petroleum (+16.3%); and lowered his participation in General Motors (-14.8%). In addition, last week he received regulatory approval from Occidental Petroleum to buy up to 50% of the company.
Although it is worth clarifying that Warren Buffett has a very concentrated portfolio. His five largest positions represent 75% of his portfolio.
Let’s remember his phrase: “Diversification is a protection against ignorance. It makes little sense if you know what you’re doing.”
Without a doubt, the most important is Apple, with 41%. Then, between Bank of America, Coca Cola, Chevron and American Express add up to 34%. Taking this weighting into account, its global portfolio did not change significantly.
The important thing for someone who manages portfolios is always to compare how they did against the S&P 500, the main index in the world.
Yet Warren Buffett hasn’t beaten the performance of the S&P 500 for 15 years. How can you analyze it?
In the following graph I am going to show you the relationship between Berkshire Hathaway (Warren Buffett’s company) and the S&P 500 index. If the relationship goes up, it means that Warren Buffett is doing better than the market, and vice versa. Let’s see:
We can see that from 1980 to 2007, with virtually no breaks, Warren Buffett managed to beat the market. For that magnificent performance he earned the prestige and envy of the whole world.
Although it is very interesting to analyze the performance from 2007 to the present. As you can see from the chart, it was not able to outperform the S&P500, instead it moves pretty much the same.
Clearly this is not a criticism of him, far from it, but lately the reality shows that investing in the index or in his company is something very similar. Is he losing his “magic”?
It is also worth clarifying that it does not have the same maneuverability as a retail investor or a smaller fund, simply because of a magnitude issue. Its portfolio totals US$300,000M and is distributed as follows: Apple (US$122,000M), Bank of America (US$31,000M), Coca Cola (US$25,000M), Chevron (US$23,000M), American Express ($21bn) and Others ($77bn)
With Apple alone he has a position of 890 million shares. Do you know how much Apple trades in an average day? 80 million shares. This means that Warren Buffett would need 11 days in a row to sell his position in order to get out. It is obviously impracticable and he would need at least two months.
What if there was a problem at Apple and Warren Buffett needed to relinquish his position? He would be practically trapped. And it would be a very dangerous signal for the market. To be attentive.
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