- Is Warren Buffett really that gifted a stock picker?
- Can each and every one us be a Warren Buffett?
- BRK.A versus a portfolio comprising of techland stars, dogs and middle-of-the-road companies.
Let me start off by reverse quoting a line from the Immortal Bard, William Shakespeare's book/play, Julius Caesar, "I come to praise Mr. Buffett, not bury him".
With that said, I was talking to a group of Indian investors in Bombay over the weekend, and inevitably, the discussion of Mr. Buffett came, and all of the group were in awe of him and rightly so. I told them there was a Warren Buffett in pretty much every single one of us. Each and every one of them looked at me like I am crazy. So what follows is pretty much the discussion I had with them laid out in article format.
In order to prove my theory, I choose a basket of techland stocks, and went back and compared the returns over a 5, 10, 15, 20-year period against the venerable BRK.A, which is Berkshire Hathaway, Mr. Buffett's investment vehicle. The results were pretty startling, and you will see why.
First, the following parameters will be helpful for all of you to follow along:
For the techland basket for the 5 and 10-year periods, I used the following stocks: BVSN, BCOR (the good old infamous Infospace of the Naveen Jain fame, or infamy, however you want to look at it), RNWK, BBRY, AAPL, YHOO, PCLN, GOOG, INFY.
For the 15-year period, GOOG was not public, so I took that out and used CSCO instead.
For the 20-year period, most of the basket had to be changed, because most of the companies in the 5, 10, and 15-year basket were not even start-ups, let alone public, except for AAPL and CSCO. So, instead in came HPQ, ACN, IBM, INTC, MSFT, T, QCOM.
The periods used for all calculations were the month of April 2009, April 2004, April 1999, April 1994: 5, 10, 15, and 20 years ago, so please keep that in mind.
Now the price points, starting with the venerable BRK.A. 5, 10, 15, 20 years ago, in the month of April, BRK.A was trading at $94,000, 5 years ago, $93,390, 10 years ago, $76,400, 15 years ago, and at $16,100, 20 years ago. Today, it trades at $184,640. Outstanding returns!
So let's start with our techland basket, starting with BVSN for the 5, 10, 15-year periods, which were $12.89, $87.25, $1451 respectively. Today's price? $10.74. A big raspberry, yes?
Moving on to BCOR, prices for the same period were $6.63, $32.91, and $179.14 for 5, 10, 15 years ago respectively. Today? $18.77. Hmm!
Next up is RNWK. 5, 10, 15 years ago, RNWK traded at $9.84, $22.76, $222 respectively. Today, $7.60. Yikes!
The in-the-news and the subject of crazed debate among investors is BBRY, or RIMM that it was known as back in the day. Same 5, 10, 15 years ago, BBRY was trading at $68.76, $17.58, and $1.96. Today, it's $7.96. So if you were an investor in BBRY 15 years ago, you would still have a 3 1/2-bagger, but for some 5 and 10 years ago, you are not very happy given today's price of $7.96.
Now it's AAPL, at the moment the subject of rabid investor angst and apathy. 5 years ago, the shares were at $126, 10 years-$12.89, 15 years ago at $11.50, and wait for it, $20 years ago, AAPL was trading at $7.40. Current price is $523.44. No reason to complain, no?
Next up is YHOO, which was at $14.29, $25.27, $43.67 5, 10, and 15 years ago respectively. Today's price $33.83. Remember, 15 years ago, we are at the peak of the internet bubble and partying like it was 1999 which it actually was!
5, 10, 15 years ago, PCLN was at $96.16, $26.40, and $444 respectively. Current price is $1188. Not bad at all even for the 1999 investors.
5 years ago, GOOG was at $186, 10 years back it was at $90, and the current price is $1115. (Price points have been adjusted for the current period because of the recent dual share allocation).
INFY was trading at $30.7 five years back, 10 years ago it was at $22.0, and $15 years ago it was at $5.33. Current price is $55.
Here is where CSCO comes in and GOOG is out. CSCO was trading at $28.52 15 years ago, and at $1.68 20 years ago. Current price is $22.94.
So for the 20-year calculation, we have HPQ, ACN, IBM, INTC, MSFT, T, QCOM. AAPL and CSCO remain, while the others are out. 20 years ago, these additions were trading at $10.13, $14.03, $12.34, $3.81, $2.67, $19.31, $1.33 respectively. Current prices also respectively, and are as follows: $32.45, $77.36, $193.29, $26.91, $39.80, $35.03, $78.07.
So, now the fun stuff, which is calculating return on our two baskets, starting of course, with Mr. Buffett's BRK.A. The 5, 10, 15 and 20 years' returns are as follows: 96.4%, 97.7%, 144.0%, and 1146.83%. Incredible.
Now for our 5 and 10-year basket, the returns are as follows: 543% and 883%
For the 15-year period, Mr. Buffett's BRK.A handily beats us as a result of crazy and insane internet-bubble prices like $1451/share for BVSN, $222 for RNWK, and $179 for BCOR. Our basket returned a negative 20.7% return for the 15-year period, as a result. Those were total outliers, but in the interest of fairness, I wanted to keep them in there, since they were public in the 15-year calculation, despite the obvious outlier effect. Of course, if like Mr. Buffett has from time to time made changes in his portfolio, I had chosen to cull/sell those names in 1999 and reinvest those gains in the remaining basket, the differential would be even larger. However, you get my point.
For the 20-year period, our adjusted basket returned 1371.78% versus 1146% for BRK.A. A 230% beat. Not shabby. Ask Mr. Buffett, he himself will tell you the same.
The point of all this being if you had the luxury that Mr. Buffett has enjoyed, which is billions at his disposal and almost infinite amount of access to capital/cash, especially during times of financial and stock market crisis and other times of turmoil in our stock markets (internet tech wreck, 9/11, 2008 financial meltdown comes immediately to mind), not only could you be the greatest investor in the world, but you would be far ahead of the man who currently is considered the greatest investor in the world.
So, using a strategy of long-term investing is more than likely to yield you BRK.A-like returns, if not more. For example, at the moment, we are all hearing a lot of "noise" about how weak Q1:14 quarter earnings, which have just begun, are going to be. However, if you are looking for BRK.A-like, or better returns, stay your course and ignore the short-term chatter, and you will be far better off in the longer run.
A portfolio comprising a basket of companies that I have mentioned in the article could, over the next 5,10,15 or 20 years, even now possibly provide you with better than BRK.A-like returns, if not better.
Additional disclosure: I am short AAPL weekly calls.