- Warren Buffett’s bargain-hunting isn’t viable in the current downturn, investor David Merkel argued in two posts on The Aleph Blog this week.
- The Berkshire Hathaway boss won’t find the same deals as in past crises because the federal government is shoring up the stock market and private-equity firms will outbid him, Merkel argued.
- “When your ability to source cheap assets goes to nearly zero, isn’t it time to re-evaluate whether the world hasn’t changed around you?” he asked. “Time to reinvent yourself again, Warren.”
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Warren Buffett needs to shift his investing strategy because hunting for bargains isn’t working, investor David Merkel argued on The Aleph Blog this week.
If federal authorities continue plowing cash into the economy and throwing lifelines to distressed companies, “the market will not fall enough to offer the values of a lifetime,” Merkel said in a post on his investing blog on Monday. “Buffett’s money can’t buy a good company at a cheap price.”
Merkel doubled his investment in Buffett’s Berkshire Hathaway earlier this year, partly because he expected the investor to leverage the conglomerate’s $128 billion cash pile to buy stocks during the coronavirus sell-0ff, he said in a follow-up post on Tuesday.
After Berkshire revealed that it made only $1.8 billion in net stock purchases in the first quarter, and netted about $6.1 billion from stock sales in April, Merkel slashed his stake to its original size.
“There were certainly decent values to be realized in late March,” he said. “You wouldn’t blow the whole wad, but surely you should have bought something.”
Buffett may have held back because he has an “outdated view” of the stock market’s potential decline, Merkel said. It may not fall as far as it did during past crises because policymakers are shoring it up, he argued.
“The Fed is replacing Warren Buffett”
While Merkel thinks “very highly” of Buffett, he warned that the Berkshire boss risks being usurped by the the Federal Reserve as it takes a bigger role in financing companies.
“The Fed replaced J.P. Morgan,” Merkel said, referring to the powerful Wall Street financier and industrialist. “Now the Fed is replacing Warren Buffett.”
The central bank isn’t the only obstacle to Buffett’s signature strategy of spotting and investing in undervalued businesses. If he finds a quality company at a fair price, Merkel said, private-equity firms will swoop in and outbid him because they know that “Buffett never pays top dollar.”
“When your ability to source cheap assets goes to nearly zero, isn’t it time to re-evaluate whether the world hasn’t changed around you?” Merkel asked. “Time to reinvent yourself again, Warren.”
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