Hugo Deschampsneufs, chairman of the Athelney Trust, has noted the recent underperformance of Warren Buffett but maintained that he is a ‘genius’ whose investment style should be followed by all fund managers.
In his most recent letter to shareholders of Berkshire Hathaway, the group he runs, Buffett acknowledged that in 2012 his performance – growth of 14.4 per cent – had lagged that of the S&P 500 by 1.6 percentage points.
Buffett also warned that for the first time in his 48-year history at Berkshire Hathaway, he might trail the S&P over a full five-year period in 2013. Since 2008, he has generated 51.8 per cent compared with the market’s 59.7 per cent.
‘Has Warren Buffett, the Sage of Omaha and now 82, lost his touch?’ wondered Deschampsneufs. He concluded that Buffett had not.
In particular, Deschampsneufs highlighted 1999: Buffett’s worst ever year relative to the index, when it thrashed him by 20.5 percentage points.
However, Deschampsneufs argued, ‘his worst year was also his best in that he refused to be seduced by the technologies of the so-called new economy whereas his rivals ultimately more than relinquished all the gains that they had made’.
Indeed, over the subsequent three years Buffett surged 53.4 percentage points ahead of the S&P as the dotcom bubble burst. Through his tenure at Berkshire Hathaway, Buffett’s compounded annual gain has been 19.7 per cent to the benchmark’s 9.4 per cent.
‘The most remarkable thing about Warren Buffett's achievement is that not only has no one rivalled his record but that almost no one has tried to emulate his investment style,’ Deschampsneufs contended.
‘If he is a genius - and I believe that he is - then it is the genius of simplicity,’ said Deschampsneufs. ‘Apparently, no special insight is needed to reach his appreciation of business success. Nor is it difficult to recognise the companies such as American Express, Coca-Cola, IBM, Wells Fargo and Heinz that meet his criteria.’
For Deschampsneufs, this prompted the question of why other fund managers ‘chop and change portfolios far too often, engage in complex transactions and derive less consistent and profitable results’.
He attributed it to ‘the trap of short-term relative performance’, as even a double-digit return was deemed disappointing if it was below that of the index. Deschampsneufs preferred those who eschewed the pursuit of short-term numbers in order to concentrate on long-term value.
‘Warren Buffett understands the limitations of his knowledge and that distinguishes him from those who only think that they are clever,’ Deschampsneufs concluded.
His own Athelney fund has recently been investing in property with this in mind. It has initiated holdings in Picton Property Income (LON:PCTN), the Schroder Real Estate Investment Trust (LON:SREI), and a Standard Life property fund. In addition, Athelney has increased existing stakes in NewRiver Retail (LON:NRR) and Sweett Group (LON:CSG).
‘Property investors obviously have to be selective but the economy faces four potential outcomes: healthy growth, in which case rents should rise; low growth, low inflation, so the income would help; rapid inflation, so as a real asset property should offer good protection; or a deflationary slump,’ Deschampsneufs explained. ‘Only in the last case would property suffer - three out of four looks pretty good to me.’
The August issue of What Investment, available now, contains a special feature on Benjamin Graham, the investor Buffett revered.