Analyst: Warren Buffett’s investment strategy is in crisis


    Billionaire Warren Buffett is the great example of many investors who are hoping for a similar success on the stock market by imitating their strategy. However, they have been waiting in the last few years.

    Warren Buffett is considered the star investor par excellence. With his holding Berkshire Hathaway, he seems to always find the right company for an investment and thus invests billions. However, lately, the success seems to be diminishing: in fiscal year 2016, Buffett earned $24.1 billion despite the Trump-Rally slightly less than in the previous year.

    Does Buffett’s value investment strategy invest in companies that have a simple and solid business model but are under-valued on the stock exchange, So no more? It is at least in the deepest crisis since the Great Depression, says a new study by investment bank Goldman Sachs.

    Is value investing dying?

    In his analysis, entitled “The death of value?” Analyst Ben Snider does not have a good testimony to the strategy of value investing for the past few years. Investors who had equated it to Warren Buffett, bought shares with a low valuation, and sold overvalued stocks, would have had a negative return in six of the past ten years. Overall, the loss in this period is 15 percent, “CNBC” quotes the Goldman Sachs expert. By comparison, the S&P 500 was able to roughly double its point during this period.

    Previously, in the years 1940 to 2007, on the other hand, the strategy would have worked even better: At that time, an average return of five percent per year and seven out of ten years had been a profit,

    So is value investing at the end? At the moment, more and more money is flowing into passive investment instruments such as ETFs, which not only require less effort on the part of the investor and have so far produced solid returns, but also make it increasingly difficult to find undervalued equities. After all, buy ETFs simply all the papers, which are in the illustrated index, no matter whether they are expensive or cheap and so drive the valuations ever further upward. The weak performance of the value-investing strategy brings the Goldman-Sachs expert directly to the increasing popularity of such passive investment strategies that make Warren Buffett and his followers’ life difficult.

    Investors must adjust to lower yields

    Warren Buffett’s strategy should be fully depreciated, but investors should not. “We believe the value strategy remains a good long-term strategy, even if future returns are likely to be lower than the historical average,” says Snider.

    The success of a value investor would also always depend on the progress of the current economic cycle. “The fundamental background for income from value strategies has been particularly unfriendly in recent years, but these conditions are unlikely to continue (and weaken again),” the expert continued. So it is only a matter of time before this strategy will be better – even if investors are likely to have some patience.

    Anyone who wants to move in the footsteps of Warren Buffett, despite the recent weaker performance, should, however, pay attention to one thing, the Goldman analysis.

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    Brayden Fortin is a American with numerous years of investment experience in the American Equity Market and in the Global Commodity Market. He has a B.Com degree from a well respected Canadian university and has experience working in the wealth management industry. He is interested in delving into numbers to analyze companies and markets. He won a couple of international strategy simulation competitions involving decision making through numerical analysis, and also scored in the top 50 on the Bloomberg Aptitude Test (out of nearly 200,000 test takers).