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Warren Buffett’s Stock Picks Suffered The Same Fate As Everyone Else’s In Q3

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Not even the stock picks of legendary investor Warren Buffett of Berkshire Hathaway could deliver positive returns in the third quarter, one which saw the S&P 500 decline by about 6.9%, though they did beat the market based on our calculations. Buffett’s 45 positions in stocks with at least a $1 billion market cap delivered a weighted average returns loss of 5.9% in the third quarter, based on the size of his holdings as of June 30. That dragged Buffett’s stock pick returns down to a loss of 7.8% year-to-date using the same method of calculations.

Warren Buffett and Billionaires

It’s not as if Buffett himself didn’t see the major market correction coming. He said during a CNBC interview in May that stocks would not look cheap and would be on the high side on a valuation basis should interest rates normalize. While rates have not yet actually increased, the uncertainty over a potential rate hike was certainly one of the factors that led to the heavy selling in mid-August.

Warren Buffett
Warren Buffett
Berkshire Hathaway

Then there’s the so-called ‘Warren Buffett Indicator’, which Buffett famously described as “probably the best single measure of where valuations stand at any given moment” during a 2001 interview with Fortune Magazine. That valuation method measures the value of a country’s corporate equities against its GDP. Anything over 100% and the equities of that country are considered overvalued. It registered a 153.6% in the U.S just before the tech bubble burst in 2000, and has soared from a low point of just over 62% after the 2008 financial crisis to over 125%.

Professional investors like Buffett spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds and other investment firms have not been good on the whole for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 118% and beaten the market by more than 60 percentage points since the end of August 2012 (see the details).

Regardless of where the market heads, Buffett is a long-term investor and has supreme faith that his top picks will outperform the market and deliver strong returns over the long-term; and who can argue with him? Let’s check out the performance of some of Buffett’s top stock picks and where they might head from here.

Wells Fargo & Co (NYSE:WFC)

  • Shares Owned by Buffett (as of June 30): 470,292,359
  • Value of Buffett’s Shares (as of June 30): $26.45 Billion
  • Percentage of Buffett’s Public Equity Portfolio (as of June 30): 24.67%
  • Third Quarter Returns: -8.10%

Buffett’s top pick was also the second-worst performing stock among his top five picks, unhelped by the fact that interest rates weren’t raised, which was a short-term blow to financial stocks. The most valuable bank in the world, with a market cap of $263.60 billion, Wells Fargo & Co (NYSE:WFC) recently announced the acquisition of General Electric Company (NYSE:GE)’s railcar services and leasing businesses, which will make it the second-largest lessor of railcars and locomotives in North America. Billionaire Ken Fisher has the largest position in Wells Fargo & Co (NYSE:WFC) in our database after Berkshire’s, owning 18.70 million shares.

Follow Wells Fargo & Company (NYSE:WFC)
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