Warren Buffett losing some mojo on his economic 'moats'

Thu Apr 30, 2015 3:02pm EDT
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By David Gaffen and Jennifer Ablan

NEW YORK (Reuters) - Warren Buffett has carved out a core stock-picking strategy of investing in companies with strong economic "moats," businesses that have built, fortified and generated success from well-known brands that make it difficult for them to succumb to competitive forces.

But for a number of holdings in his stock portfolio, the moats may be drying up and the walls could be breached.

Stalwarts like International Business Machines (IBM.N: Quote), Coca-Cola Inc (KO.N: Quote), Procter & Gamble Co (PG.N: Quote) to name a few have showed declining revenue trends in recent years, and face competition that may make it more difficult for them to outperform the market in the way they did in the past.

When Berkshire Hathaway Inc (BRKa.N: Quote), the conglomerate Buffett has run since 1965, releases quarterly results on Friday - which will follow with his annual gathering in Omaha, Nebraska - it is likely to show that his largest equity-market positions trailed the broad-market Standard & Poor's 500 Index.

On average, the 15 biggest positions he owned at the end of 2014 have gained 7.8 percent in the last 12 months, compared with a 13.1 percent rise for the S&P.

Buffett supporters - and there are many - would say that the 84-year-old investor is hardly looking at the short term, but what stands out about some of the larger holdings are weakening revenue trends that augur for concern about the long-term, not just the short term.

"The moats are not as deep and unimpenetrable as in the past," said Doug Kass, who runs Seabreeze Investment Partners in Palm Beach, Florida, and has questioned Buffett's investments in the past. He currently has no position in the stock.

That is not to say Buffett is any kind of a slouch. Those 15 holdings, over the last five years, on average, are ahead of the S&P, with an average gain of 85 percent, compared with the S&P's 78 percent rise.   Continued...

Warren Buffett, chief executive officer and chairman of Berkshire Hathaway Inc, speaks at a National Auto Dealers Association event in New York in this March 31, 2015 file photo.  REUTERS/Brendan McDermid