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 But for a number of holdings in his stock portfolio, the moats may
be drying up and the walls could be breached.
Stalwarts like International Business Machines <IBM.N>, Coca-Cola
Inc <KO.N>, Procter & Gamble Co <PG.N> to name a few have showed
declining revenue trends in recent years, and face competition that
may make it more difficult for them to outperform the market in the
way they did in the past.
When Berkshire Hathaway Inc <BRKa.N>, the conglomerate Buffett has
run since 1965, releases quarterly results on Friday - which will
follow with his annual gathering in Omaha, Nebraska - it is likely
to show that his largest equity-market positions trailed the
broad-market Standard & Poor's 500 Index.
On average, the 15 biggest positions he owned at the end of 2014
have gained 7.8 percent in the last 12 months, compared with a 13.1
percent rise for the S&P.
Buffett supporters - and there are many - would say that the
84-year-old investor is hardly looking at the short term, but what
stands out about some of the larger holdings are weakening revenue
trends that augur for concern about the long-term, not just the
short term.
"The moats are not as deep and unimpenetrable as in the past," said
Doug Kass, who runs Seabreeze Investment Partners in Palm Beach,
Florida, and has questioned Buffett's investments in the past. He
currently has no position in the stock.
That is not to say Buffett is any kind of a slouch. Those 15
holdings, over the last five years, on average, are ahead of the
S&P, with an average gain of 85 percent, compared with the S&P's 78
percent rise.
And he can still be opportunistic, as in the aftermath of the
financial crisis when he acquired a $750 million position in Goldman
Sachs Group Inc that's now worth $2.5 billion, and an option to buy
700 million shares in Bank of America Corp <BAC.N> for $5 billion -
now worth $11.2 billion.
What's less clear, however, is whether these previously unassailable
franchises are facing competitive pressures that will continue to
hurt sales growth. Buffett owns 76.9 million shares of IBM that as
of last year had cost him $13.2 billion, and that position is
underwater; IBM is trying to reverse 12 straight quarters of
year-over-year revenue declines as it plays catch-up in the cloud
computing space.
Two other large positions, Coca-Cola and Wells Fargo & Co <WFC.N>,
are also struggling. Wells Fargo has had three straight quarters of
year-over-year revenue growth, but that followed 18 quarters of
decline. Revenue growth has fallen for Coke in 8 of the last 9
quarters as the company deals with changing consumer tastes.
But of course, Buffett's total cost for his 400 million shares of
Coke was $1.3 billion. As of Wednesday, it was worth $16.2 billion.
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“Since he bought it in the 1980s, his return from stock price
appreciation and dividends received has been terrific, and will
likely continue compounding for years to come," said Ken Stein,
founder and portfolio manager at Spencer Capital Management.
Berkshire did not respond to requests from Reuters for comment.
It remains to be seen whether Buffett's portfolio sees a greater
shift with the increased influence of Ted Weschler and Todd Combs,
the two men handling portfolio management for the last few
years.Berkshire's annual letter lists only the 15 largest positions
in the portfolio - many of which predate the two executives - so it
is possible that there are other, smaller positions that are big
winners. Weschler and Combs are credited with buying DirecTV for
Berkshire, which has a 54 percent gain for them. On the other hand,
last year Berkshire sold U.K. food retailer Tesco, which Berkshire
took a $444 million loss.
Kass even acknowledges that Buffett's ability to hunt for unknowns
now would not be easy given the firm's size and stature, in the way
he did early in his investing career.
Other investors believe that for Buffett to change his approach
would be foolish at this stage of the game.
"His shareholders, I think, would get unnerved if he woke up one day
and said, 'Yeah, you know, I’m wrong, let’s buy Apple,'" said Jeff
Matthews, who runs Ram Partners, a Naples, Florida-based hedge fund,
owns Berkshire shares in his personal account, and has written
several books about Buffett.
"When you compound at 20 percent a year for 50 years and that’s
better than anybody, how do you start picking that apart just
because he didn’t own Apple?"
(Reporting By David Gaffen and Jennifer Ablan; Editing by Bernard
Orr)
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