The Article of the Week

Doug Kass over at thestreet.com had an interesting article late last week that focused on Berkshire Hathaway (NYSE: BRK.A) and Warren Buffett.  In his article, Kass lays out the basis for his short position in Berkshire Hathaway.  While such a position may seem absurd due to Buffett’s past success in the markets, Kass does a great job in outlining his reasoning for such a position and the article is well worth a read.      

While Kass readily admits that he is a huge fan of Buffett and all that he has done over the past four decades his suggestion that Buffett is going through a period of style drift, as seen in his large exposure to currency markets and derivatives is fairly accurate in my opinion.  Style drift as a term can be defined as occurring to an investor when they undertake a significant change to their investment philosophy.  Buffett certainly has done this over the past several years, this has in part occurred because he has been so successful in expanding his pool of capital.  Berkshire Hathaway is now so large that he can no longer invest in the vast majority of securities.       

While smaller investor’s certainly do not have the problem of having too much capital to invest they nonetheless will always fall victim to style drift.  I see Buffett’s recent style drift as merely a sign that he is actually human, prone to the same strong desire to do better then the year before as any other investor.  Yet, when investors go through a period of style drift it is usually a bad thing as rampant speculation is often the result.  Kass’s sense of opportunity in Berkshire Hathaway’s shares is as a result undoubtedly warranted.        

Time will only tell whether or not Buffett’s shift into derivatives and currencies will be successful.  While he may be just smart enough to pull it off the average investor (including myself) is not and I would advise everyone to remain focused on their area of expertise regardless of how long your run of bad luck has lasted.  Kass has an interesting article and it is worth a bit of your time.  

For Further Review:

Kass's Article at thestreet.com