Temps down, yields up. Stocks largely dropped yesterday as investors eyed rising bond yields. Warren Buffet revealed his recent portfolio additions prompting investors to take a chance alongside the fable Oracle of Omaha.
N O T E W O R T H Y
Not fade away. One can argue that he has certainly been less of a factor in recent years. But by now you probably know that Wall Street has a way of throwing some curve balls… now and again. I am referring to that legendary investor Warren Buffet. He is a household name when it comes to investing, recognized by not only Wall Streeters but also everyday folks. I lost count of how many Harvard Business School case studies I had to delve into in graduate school, all covering the investment genius, people skills, and marketing savvy of Buffet. Warren Buffet was born and raised in Nebraska, where he developed an appreciation for stock investing at an early age and managed to hone his entrepreneurial skills in his, now legendary business ventures which included pinball machines in barber shops, newspaper delivery, and chewing gum sales. He eventually found himself earning a master’s degree in economics at Columbia University, where he studied under another Wall Street legend, Benjamin Graham. Graham is the co-author of the 1934 investment bible Security Analysis. The book is more well known as “Graham and Dodd’s” and graces the shelves of just about anyone who is on, has been, or hopes to be on Wall Street. Full disclosure: I actually own 2 copies, one old edition and one current (if you count 1982 as current). You see, Benjamin Graham is known as the father of value investing. His books espoused the benefits of careful, methodical, fundamental analysis in stock selection. Also covered in his texts were the concept of diversification. Mind you, his seminal work was published in 1934, years before Harry Markowitz published his Nobel Prize winning essay on Modern Portfolio Theory in 1952. More full disclosure, I have an original edition of his work on the same shelf as Graham and Dodd’s. That shelf to which I refer, has served as a temporary home to many other important works on markets, mathematics, computer programing, statistics, and economics. I say “temporary” because while those two titles endure, many of those other books were ultimately boxed and re-boxed before they went on to their final resting place in a far corner of my cellar storage closet. The works of Graham and Markowitz have persisted and serve as a reminder, to me at least, of the importance of fundamental analysis and the mathematically proven benefits of portfolio diversification. My regular readers know that I write often about those two important tenets of investment. So, getting back to the Sage of Omaha, he developed his famous investing discipline under Graham and eventually went on to acquire shares in Berkshire Hathaway, a textile manufacturer, which ultimately became the nucleus of the conglomerate that now exists today. The company has owned large stakes in many well-known international companies, all acquired under Buffet’s core principals. Ok, so here is the math. If you purchased a share of Berkshire Hathaway (BRK/A) in 1987 and held it until today, you would have realized a gain of +12,675.86%. Yep! Oh, for reference, the S&P500 only gained +1,1555.46% over the same period… only. So, it is clear that whatever methods Mr. Buffet was using have worked, enabling investors to handily beat the market. The story changes somewhat in recent years, during which value investing has given way to the popularity of growth investing. Since 2015, Berkshire has returned a respectable +87% compared to the S&P500’s +113% gain. But… the growth-oriented Nasdaq 100 Index raked in +215% while Apple and Microsoft alone tacked on +438% and +383%, respectively over that time interval. Buffet has owned both Microsoft and Apple, though he is more likely to favor value oriented firms. A good example is that he owns a stake in GM but not Tesla. Buffet, who is now 90 years old, remains the Chairman and CEO of Berkshire Hathaway. His investment partner is 97-year old Vice-Chairman Charlie Munger. They still embrace a strict adherence to their core, long term investment strategy. Have you heard those words before? That said, many wonder if the company can continue to thrive as the investment dynamic duo cede more and more responsibility to subordinates. The company is notable for amassing a huge cash pile in recent years for want of good investment candidates. Is the era of Buffet and value investing in its last throws? Apparently not. Yesterday, in a 13F filing, Berkshire Hathaway revealed investments in Verizon (VZ) and Chevron (CVX). Did anyone care? As you will see in the Markets section below, the market was generally down yesterday in response to rapidly rising treasury yields. Oh, but the Dow Jones Industrial Average was up. That index includes Verizon and Chevron, which added +5.24% and +3%, respectively, topping the index’s leader board. They helped the Dow end the session in the green. So, yes, investors are still paying attention to Buffet, and no, value investing is not dead. Incidentally, Berkshire Hathaway is the 7th largest company in the S&P500, topped only by Apple, Microsoft, Amazon, Facebook, Google, and Tesla.
Stocks fell yesterday as investors became concerned about higher borrowing costs associated with higher yields. The S&P500 slipped by -0.03%, the Dow Jones Industrial Average climbed by +0.29%, the Russell 2000 Index dropped by -0.74%, and the Nasdaq Composite Index sold off by -0.58%. Bond climbed and 10-year treasury yields slipped by -3 basis points to 1.27%. Crude oil continued its climb, adding +1.82% as supply remains crippled in frozen-over Texas.
The energy sector was the top performing sector yesterday, adding +1.45%.
– Housing Starts (Jan) are expected to have fallen by -0.5% compared to last month’s +5.8% gain.
– Building Permits (Jan) may have fallen by -1.4% after growing by +4.2% in December.
– Initial Jobless Claims (Feb 13) are expected to come in at 773k, down from last week’s 793k.
– The Philadelphia Fed Business Outlook (Feb) may have fallen to 20.0 from 26.5.
– This morning Waste Management, Marriott International, and Hormel Foods beat, while Walmart, Hecla Mining, and First Energy missed. After the bell we expect announcements from Applied Materials, Host Hotels, Planet Fitness, Dropbox, Rackspace, Appian, eHealth, Roku, and TripAdvisor.
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