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Warren Buffett's bets haven't paid off in 2018 -- but he's still beating the market

Take heart, investors. This rocky stock market has put a dent in everyone's returns -- even those of investi...

Posted: Oct 31, 2018 2:50 PM
Updated: Oct 31, 2018 2:50 PM

Take heart, investors. This rocky stock market has put a dent in everyone's returns -- even those of investing guru Warren Buffett.

Shares of Berkshire Hathaway (BRKB) -- the Oracle of Omaha's Berkshire industrial and insurance conglomerate -- are down 4% in October and are 8% below their 52-week high.

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Of course, nobody needs to start a GoFundMe campaign for Buffett. He's still worth about $85 billion, according to Forbes. And Berkshire Hathaway shares are up more than 4% this year, which is a bit better than the Dow and S&P 500.

But that's not exactly a legendary gain. So what's holding Berkshire Hathaway back?

The company's performance is tied to both its many subsidiaries -- which include Geico, railroad Burlington Northern Santa Fe and consumer brands like Duracell, Dairy Queen and paint maker Benjamin Moore -- as well as a massive investment portfolio.

And Berkshire Hathaway's stock picks have been lackluster as of late, especially his big bet on Kraft Heinz (KHC). Berkshire teamed up with private equity firm 3G to buy Heinz in 2013 and they then backed the Kraft deal in 2015.

Kraft Heinz is getting squeezed

Berkshire owns more than 325 million shares in Kraft Heinz, making it the firm's third-largest holding. The company's stock has plunged more than 30% this year. The ketchup and macaroni and cheese company will report its latest earnings on Thursday.

Analysts are forecasting a slight drop in both sales and earnings for Kraft Heinz.

Big food companies have been hurt by changing consumer tastes as many Americans have shunned processed food in favor of healthier options.

The increased clout of Walmart (WMT) and Amazon (AMZN) in the grocery business have also put pressure on the makers of supermarket staples as both retailers have focused on keeping prices low. So has grocery giant Kroger (KR) for that matter.

But Berkshire's Kraft Heinz investment isn't the only one hurting Buffett's portfolio.

Berkshire's continued support for big banks like scandal-ridden Wells Fargo (WFC), Bank of America (BAC), US Bancorp (USB) and Bank of New York Mellon (BK) have dragged it down too.

All four financial stocks, which are among Berkshire's ten-largest holdings, are in the red for 2018, led by 12% drops in Wells Fargo and Bank of New York Mellon.

Two other financials in Berkshire's top ten holdings -- American Express (AXP) and Moody's (MCO) -- have been flat/slightly up this year. So are shares of Buffett's beloved Coca-Cola (KO) and airline Delta (DAL), which are also among Berkshire's top ten stocks.

Berkshire also has sizable stakes in other financials and airlines that have been market dogs this year, including Goldman Sachs (GS), Southwest (LUV) and American (AAL).

And despite rosy results for top 20 Berkshire holding General Motors (GM) on Wednesday, shares of the largest US auto company are still down more than 10% this year.

But it's not all bad news for Buffett. Berkshire has been helped by his relatively newfound love affair with Apple (AAPL), which has replaced IBM (IBM) as Buffett's favorite tech stock.

Apple's stock is up nearly 30% this year and the iPhone maker is Berkshire Hathaway's biggest holding. Berkshire owns about 252 million shares, a more than 5% stake in Apple that is currently worth $55 billion. Apple's latest earnings are due out Thursday.

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