Is Warren Buffett no longer relevant in 2020? The famous billionaire is shying away from the market crash despite his massive liquidity. He also did nothing during the U.S. stock market crash in the fourth quarter of 2018.
Some observers are saying the Sage of Omaha is a washed-up investor. There might be some truth to the opinion of many if the measure is the performance of Buffett’s conglomerate, Berkshire Hathaway.
Although Berkshire has outperformed the S&P 500 Composite Index for seven years since 2009, Buffett’s quantum of performance is starting to trend lower. Buffett’s best year was 2014, when his empire outdid the S&P 500 by 13.3%.
In 2019, Berkshire lagged the S&P 500 by almost 20% and was on track to post two consecutive years of underperformance. The company posted a record net loss of $49.75 billion in the first quarter of 2020. Profits declined by $21.7 billion versus last year. On a year-to-date basis, Hathaway trails by nearly 20%.
The margin of underperformance between Berkshire and the S&P 500 is growing wider. Buffett believes in the power of compounding, yet he can only show a 9.7% compound annual growth rate (CAGR) from January 2009 to May 2019. The SPDR S&P 500 ETF did better, with a 13.5% CAGR during the same stretch.
Value investing is outdated
When he bypassed the technology space, Buffett missed the boat. The sector was the biggest driver during the longest bull market run. It took a while before he realized his mistake of not investing in Amazon.com, for example. He’s buddies with Bill Gates, but did not take a position in Microsoft.
The value investing approach seems to be outdated, with Berkshire exhibiting low growth and poor returns. Notably, growth has outpaced value. Growth stocks had outperformed value stocks in the U.S. over the prior year, five years and 10 years.
Growth stock pick
Buffett said he avoided tech stocks because it was hard to pick a winner — but his mindset would change with Kinaxis (TSX:KXS). This $5.21 billion provider of supply chain planning software has the makings of a winner in the pandemic era and beyond.
Kinaxis is a growth name investors should be paying attention to in 2020. The COVID-19 pandemic has disrupted global supply chain activities. The company can help businesses identify the problem, monitor the situation, and predict the impact.
Disruption is the new normal such that enterprises and manufacturers need to be ready and resilient to meet the turbulence ahead. According to Kinaxis CEO John Sicard, the goal is for customers to gain control and confidence under these unusually volatile conditions.
Prominent global names are among Kinaxis’ growing customer base. Revenues are recurring with the 20% annual sales growth. The backlog of orders is long with good margins. On the TSX, the tech stock’s year-to-date gain is 96.6%.
Another billionaire investor, Leon Cooperman, sees it differently. Buffett’s lack of stock purchases in 2020 is a red flag. If the GOAT of investing can’t figure out the market, the more you need to be cautious — and thus give Mr. Buffett a break.