Warren Buffett vs. Cathie Wood – Is the Oracle of Omaha’s Strategy Paying Off Again?

The wind seems to be turning in Warren Buffett's favor in the financial markets.

Warren Buffett vs. Cathie Wood.

This is the long-distance match between two stars of financial management that has fascinated the investment world for several months now. If this duel between these two stars is so exciting, it is above all because these two personalities represent two completely different types of management. Two radically opposed approaches.

On one side, you have Warren Buffett. Do I still need to introduce the Oracle of Omaha who at 91 years old is the head of a fortune of more than 110 billion dollars? Warren Buffett is the star manager of the century. A legend of the investment world.

His Berkshire Hathaway fund is listed on the stock exchange and is worth nearly 700 billion dollars at the time of writing. Warren Buffett's management principles have been presented in many books over the years: long-term investing, even very long-term.

Warren Buffett is the most famous representative of the value-oriented investment philosophy

Warren Buffett is the singer of value investing. He only invests in what he understands. He looks for undervalued companies according to a series of criteria based mainly on profitability. Warren Buffett, therefore, invests in big names. Solid companies with solid performance.

In Warren Buffett's portfolio, you will find Apple, Bank of America, Coca-Cola, American Express, or Moody's.

Warren Buffett's performance with this management style is solid. He has outperformed the S&P 500 since 1965. About 20% per year for Warren Buffett, against 10% for the S&P. But, because there is always a “but”, Warren Buffett has underperformed the S&P 500 for the last 10 years:

Warren Buffett does own Apple shares, but he has missed the Tech wave, which explains why he is lagging in performance. This has led some analysts to wonder if Warren Buffett has simply become a “has-been”.

This was the case during the Internet bubble, which he refused to embrace. He was dumped in the late '90s, before taking his revenge when the Internet bubble burst.

Cathie Wood is the figurehead of the "growth" investment philosophy

Opposite Warren Buffett, we have Cathie Wood.

Cathie Wood manages the Ark Innovation fund. She has quickly become the muse of the new economy. Cathie Wood's main achievement is to have invested a large part of her assets in Tesla. Her fund has therefore logically benefited from the surge in Tesla's share price.

Cathie Wood's management style is the opposite of Warren Buffett's. It is the “growth” style. Contrary to Warren Buffett's “value-oriented” management style, which focuses on companies that are undervalued concerning criteria revolving around profitability, “growth” management focuses on companies with growth or strong growth potential even if they are not profitable.

Cathie Wood has invested in stocks that have exploded in value: Tech stocks. These are the stocks that have fueled the rise of American indices in recent months, led by Tesla. Ark Innovation was the star of the year 2020, crushing the competition with a stratospheric performance. The match between Warren Buffett and Cathie Wood seemed to be over, with Wood knocking out Buffett.

The change of trend in the financial markets seems to give the advantage to Warren Buffett, once again …

But in the last few months, the tide has turned. There is a sector rotation taking place on Wall Street. Investors are moving out of certain sectors of the market to invest in other sectors of the market. And investors have decided in the last few weeks to burn what they have been worshipping for the last few months: Tech.

Ark Innovation is therefore facing a big dump: a 30% drop since the beginning of 2022. More than 50% drop in one year. Investors are simply abandoning the boat, fearing it will sink.

True to his lifelong investment philosophy, Warren Buffett continues to move forward slowly, but surely. And Warren Buffett is catching up with Cathie Wood's performance day after day. Knocked out a few months ago, Warren Buffett has risen to his feet and seems poised to win again.

Final Thoughts

We'll see how things develop in the months to come, but there are probably at least two morals to take away from this stock market clash that is currently making headlines. The first is that patience always makes a difference, as Warren Buffett has always said.

The second is that it is essential to follow your investment strategy to the end if you are convinced. Warren Buffett has had tremendous success with his strategy and he is convinced that it will pay off again. So he chose to trust himself, and it seems to be paying off once again.

The Oracle of Omaha is forever.

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