Warren Buffett: Wrong-Headed Hypocrite on Foreign Stocks?

The investing legend has long advocated domestic shares. But are they always the best bet? And why did he buy Israel’s Teva, anyway?

You can credit Warren Buffett for a lot of things, and consistency is one of them. Through the years, he has almost unwaveringly stuck to his investing precepts, and he’s the third-richest person in the world.

Sure enough, on Thursday, he reiterated one of his tenets: Stay with US stocks, and by implication, don’t bother with international names. “You really want to bet on America,” Buffett said in a CNBC appearance, where he also noted that the US economy has slowed. “God has blessed America.”

While saying so may be heresy, perhaps the iconic Buffett is wrong about this. And maybe deep down he knows it, having made a hefty purchase of a foreign stock in 2018.

The stellar market record of his company, Berkshire Hathaway, would seem to support the wisdom of his US-only advice. Over the past 10 years, the S&P 500 (composed of only American stocks) has advanced 15.4% annually, versus the MSCI index covering all non-US stocks, 8.3%.

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But with half of the world’s stock valuation outside the US, does his prohibition on overseas equities make sense? Especially since emerging market countries, or at least some of them, have a lot more room to grow than does a developed nation like the US.

Domestic stocks trailed both Europe and Japan’s equities in the 1970s and 1980s, and from 2001 through early 2008, according to MSCI. True, during those times, the US economy mostly enjoyed healthy growth. An investor who shunned the rest of the world, though, lost out on an opportunity.

Still, Buffett has shown that he can change his mind. Once, he abhorred airlines, which he called a “death trap” for investors. The same was true for tech firms—he said he didn’t understand them. Well, as of  Berkshire’s most recent filing, it holds American and Delta, as well as Apple and Red Hat.

And last year, Berkshire bought a $60 million stake in Teva Pharmaceutical, which is an Israeli outfit. This is a real value play because the drug firm is stumbling under its large debt load. Berkshire did not return a request for comment. 

Who knows, despite his continued US-centric rhetoric, maybe Buffett will buy more overseas stocks. He always has counseled to invest against the grain—and that may include his own advice.

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Exclusive: Michigan’s Hotel-Heavy Strategy Pulls Real Estate Portfolio Ahead of the Pack

Being ‘overweight’ in hotels helped real estate outperform other asset classes in $69 billion portfolio.

The $69.5 billion State of Michigan’s Retirement Systems’ private real estate allocation was its strongest performing portfolio in 2018, after a bad year with global equities that many other pensions experienced at the end of the year.

Deputy Chief Investment Officer Ron Leix explained to CIO that the portfolio’s “outperformance relative to the one-year benchmark resulted from the Real Estate and Infrastructure Division’s (REID) strategy of being underweight in retail, overweight in hotels, team selectivity in the apartment sector, several favorable sale executions, and unrealized appreciation and income in the overall portfolio.”

The private real estate portfolio generated an annualized 6.7%, whereas public real estate investment trusts (REITs) fell in value by 4.1% including dividend returns. The difference was a bit of an anomaly though, mostly because of REITs’ significant beta with public markets. Over the past 10, 20 and 30 years, publicly traded REITs have out-returned private real estate by 5.5%, 1.4%, and 2.8% annualized respectively, though they are three times more volatile.

“The REID has direct investments within the portfolio and focuses on value-add and build to core strategies,” Leix explained to CIO. “The portfolio is actively managed and was a net seller in 2018. The REID portfolio has significantly outperformed both its peer median return set and benchmark over the one-, three-, five- and seven-year periods. There is a pacing schedule and the portfolio is at its target allocation of 10%.”

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The REID actively manages its portfolio with dispositions resulting in capital returned in excess of $2.1 billion, and funding new investments of nearly $1.9 billion over the past 12 months, according to a report from the institutional investor.

It has approximately $1.5 billion in unfunded commitments and made two sizable pacts in the last quarter of 2018: $200 million was committed to Blackstone Real Estate Partners IX, a fund that specializes in “large, global, opportunistic real estate transactions,” and another $200 million was committed to Lone Star Fund XI, which looks for global opportunistic real estate credit strategies.

The pension’s real estate and infrastructure allocations are detailed below:

Source: Michigan Retirement Systems

A strategy update provided to the board noted that the team is focusing on sourcing off-market opportunities through its “extensive” network and reducing risk in the portfolio through early income-generating investments, such as credit strategies that are “higher in the capital stake with a shorter projected hold period.”

Some institutional investors,, such as Norway’s sovereign wealth fund which is planning to cull some of its unlisted real estate assets and discontinue the organization’s property arm, haven’t had as much success as Michigan.


More than $1.5 billion committed in three months

In the three-month period ending December 2018, the investment board allotted over $1.5 billion towards 13 strategies between its private equity, real estate, and infrastructure division, and real, opportunistic, and absolute return divisions.

They were as follows:

Source: Michigan Retirement Systems

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