Meta Platforms was a huge loser last week but tucked away in the market’s fine print about share prices was an old stager who by Friday had re-emerged with a nice win.
In fact Warren Buffett and his Berkshire Hathaway are now back in the spotlight and outperforming the wider market and techs thanks to the share market implosion last week of Mark Zuckerberg and Meta Platform (nee Facebook) and the switch to value investing ideas as the Fed moves to lift interest rates.
The return of a ‘dinosaur’ of old style investing as the attractions of techs fade and the previously group of giants fragments into its own subgroup of winners and losers.
Friday’s close told the story of the changing of the guard – Berkshire was valued at more than $US705 billion, Meta’s value was just over $US659 billion.
After soaring more than 150% from March, 2020 when last behind Berkshire, Facebook, and then Meta rode high, with its value topping the $US1 trillion mark for a while in mid 2021.
That overtook and left Berkshire and Buffett in the shade as other would-be tech giants like Tesla and chipmaker Nvidia moved past Berkshire’s market value.
On Wednesday, Meta’s value was more than $US20 billion above Berkshire’s but a day later the turnaround was complete and Mark Zuckerberg’s baby had fallen back and Berkshire had edged higher.
By Friday’s close, Berkshire shares were up 1.2% for the week and more than 4% for the year to date (the S&P 500 is down more than 6%). Meta’s shares lost more than 21% last week and are down 30% year to date. Ouch!
The reason for the change has been well publicised – it was Meta’s 26% slump in value on Thursday and a sudden loss of confidence by many investors which crunched nearly two years of topping Berkshire’s value.
Berkshire and Meta were worth similar amounts between 2016 and March 2020, but their market caps diverged sharply after the pandemic struck the US. Megatechs were thought to be the only winners from record low interest rates (and from the high support packages from governments and central bank which saw them go on a spending and investment spree).
But last week the parent company of Facebook, WhatsApp, Instagram, and Oculus shocked the market by reporting a small fall in daily active users (it blamed the rise of TikTok) but suffered an 8% decline in net income last quarter, and warned that changes to data privacy on Apple devices, along with fierce competition from TikTok, could weigh on its advertising business and faced unspecified “headwinds” this quarter.
There were no ‘warm up’ stories hinting at a weakness to massage the share price lower before the result or trim investor expectations. The result was a true shock to investor confidence.
With its big holdings in financials (mostly insurers and shareholdings in several banks) Berkshire shares are once again attractive for value investors, many of whom are not put off with the big stake (more than 5.1%) of Apple despite the latter being the world’s biggest company by value and the leading megatech.
Hence the relative outperformance against Meta since the start of the year.
Now heading to its December quarter reporting date at the end of this month and then the first in-person annual meeting in three years in late April, Buffett and Berkshire hit the headlines once again thanks to the failures of Meta/Facebook and its CEO, Mark Zuckberg.
Essentially by doing nothing except riding things out and trusting in his managers and those at companies like Apple, Bank of America, Coca Cola and Amex, Buffett’s investment ideas are once again being appreciated.
Investors are realising that as monetary policy normalises via rate rises and the slow tightening of the Fed shrinking the size of its balance sheet, it will be the old stagers like Berkshire, banks, industrials and consumer stocks that will be back in favour and megatechs will struggle for a while.
“Normal” in investment markets usually means “boring”.
It’s a lesson for investors in Australia now that the techette boom here is over (with Afterpay’s takeover and the loss of enthusiasm for US techs).
