Warren Buffett never changes his strategy and is right more often than not. As net worth returns to pre-recession levels, it’s important for investors, (especially ones who lost a ton of money), to ask the question: Did Buffett’s buy and hold strategy help him beat the market? Let’s take a look at a few sectors to see if his strategy still works.
Buffett’s strategy
If you read any of Berkshire Hathaway Inc. (NYSE:BRK.A) annual reports, you’ll find Buffett’s rules to investing, eleven statements Buffett swears by on every investment. Boil them down, and you are left with this: partner with strong management and don’t sell a good business, regardless of price. The company’s A shares are up $100,000 since its bottom in 2008, a level now about 20% higher than its prerecession peak. Sounds like Buffett’s strategy works, right?
Tech
International Business Machines Corp. (NYSE:IBM) is recording stronger earnings at $2.70 per share last quarter, refocusing itself on its mission and constantly pushing the limits of science. From its 2007 peak of $128 per share to it’s current price, International Business Machines Corp. (NYSE:IBM) returned faithful investors 67%. International Business Machines Corp. (NYSE:IBM) isn’t the only tech company that found its way over the last five years. The technology stocks in the Dow are up 50%, since 2008.
That’s 1-0 for the buy and hold method.
Financials
Next, we turn to the sector hit hardest by the recession, and earnings which drive 45% of the S&P 500. JPMorgan Chase & Co. (NYSE:JPM) took a huge hit as the recession raged on, falling just over 40%. While JPMorgan Chase & Co. (NYSE:JPM) received $25 billion in government bailout money, the company’s leaders took a hard look at their structure and made numerous changes.
JPMorgan Chase & Co. (NYSE:JPM) acquired Bear Stearns and Washington Mutual in 2008, and metaphorically righted its ship. The acquisitions added valuable customer deposits, banking relationships, and even real estate to its balance sheet. Further, at around $55 per share, JPMorgan Chase & Co. (NYSE:JPM) is currently trading above its 2007 high.
It should be noted that other financial companies such as Bank of America and Goldman Sachs are not bouncing back from the recession as well as JPMorgan Chase & Co. (NYSE:JPM). While strong earnings have pushed both stocks up 10% to 15% in 2013, neither has been able to return to pre-recession levels.
As shown below, Bank of America (currently trading around $13.00 per share) is still trading at a 74% loss compared to 2007. Likewise, Goldman Sachs (currently trading around $156.00 per share) is still running a 31% loss from 2007 peaks. Given this mixed bag of results for the financial sector, it’s tough to give a score for Buffett’s buy and hold method.
So we’re tied at 1-1.
Energy
Finally, a quick look at a sector commonly described as recession-proof. Exxon Mobil Corporation (NYSE:XOM), viewed as the energy sector leader, didn’t show much decline during the worst part of the recession. Only falling slightly to $60.00 per share in mid-2008, Exxon now trades well over that level.
Seemingly unshaken by the recession, Exxon actually increased its dividend in 2008 and continues to focus on growth by rapidly investing in the Gulf of Mexico and surrounding areas. Impressively, holding Exxon Mobil Corporation (NYSE:XOM), as well as other major players in the industry, wouldn’t have lost you any money.
Score another one for buy and hold: 2-1.
The conclusion?
We can all learn from Buffett’s ways. His commitment to partnering with companies through thick and thin, rather than trying to make a fast buck, serves him (and his investors) well. The lesson is this: maintain perspective in times of market pull-backs, and we can count on history to make us a winner. Clearly, buy and hold works; thanks Warren.
This article was written by Ian Finney and Edited by Chris Marasco. Chris Marasco is the head editor of ADifferentAngle. Neither has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Goldman Sachs. The Motley Fool owns shares of Bank of America, International Business Machines (NYSE:IBM)., and JPMorgan Chase & Co (NYSE:JPM).
The article The Buy & Hold Test: How Buffett Wins originally appeared on Fool.com and is written by Marie Palumbo.
Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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