Unfortunately, I am addicted to Twitter and Financial Twitter, particularly. This can lead one down a rabbit hole of opinions that are strongly held and generally lacking reason and rationale. One of the many questions has been why hasn’t Warren Buffett made a large acquisition or at least invested some of his large cash pile. One of the regular criticisms is that Buffett has lost his edge. The stock market has recovered extraordinarily well despite the economic data such as GDP and unemployment.
Naturally, some of the biggest names in investing have given their own opinions on the market and the consensus seems to point to the market being overvalued. The greats such as Sam Zell, Stanley Druckenmiller, David Tepper, and Warren Buffett have all recently stated the market is overvalued and it’s much too early to be a major buyer of companies.
For Druckenmiller and Tepper, it can be much more difficult to follow their advice as they are able to switch from net short to net long in an instant and are much focused on trading. While the market could be overvalued one day, they could quickly get long and they won’t go back on air to give you a heads-up before changing positions. Additionally, they may see spots that are overvalued, but still target certain areas of the market that they like. Druckenmiller stated that he loves Amazon in so many words and Tepper argued that tech may not be overvalued despite the overall market getting ahead of itself.
This really drives home the comments made by Zell and Buffett in recent weeks. Both have stated that they are not putting money to work at current prices. In the case of Buffett, we have seen him completely sell his positions in the airlines and trim his bank holdings, in some cases massively such as his position in Goldman Sachs.
This makes sense for a couple reasons:
- Neither Zell nor Buffett are considered technology investors. The companies that have recovered or excelled have been mainly tech businesses that will do well or thrive in the “new” normal.
- The businesses they invest in are still in worlds of hurt and haven’t yet reached attractive levels given the amount of risk remaining.
When I think of Buffett as an investor, I think of insurance, banks, energy, manufacturing, consumer discretionary, and railroads. When I think of Zell as an investor, I think of real estate, energy, and logistics. None of these businesses should be expected to do well in an environment with low or negative rates, unemployment of 20+%, and a global recession.
If you want Berkshire Hathaway to become biotech and cloud investors, then you should sell your stock and look elsewhere. If you understand the businesses that fall within Buffett’s circle of competence, you should allow Buffett to bide his time and wait for the opportunities to arrive in businesses that he understands and fit the Berkshire business model.
the counterfactual 