Barstool Sports' Dave Portnoy has been throwing quite a bit of shade toward Warren Buffett lately. The pizza reviewing, sports analyzing, sports betting Portnoy has taken to day trading in the wake of sports being largely postponed. In doing so, he's taken his special brand of commentary with him.
On Monday, June 8, Portnoy took to Twitter (NYSE:TWTR) in a video where he celebrated the day's run in airline stocks, and mocked Buffett for having exited his position early. He has since made multiple comments and posts about the issue, as social media and news sites have jumped on the comments.
Now, I'm sure most of what the Barstool founder said is in jest. He is an advertiser after all, and throwing his name in with Buffett draws attention. You can't really compare what he has been doing to what Warren Buffett and Berkshire Hathaway (NYSE:BRK.B) have done. It's the difference between trading and investing.
Oh yes, there is a big difference...
Portnoy is day trading and sometimes swing trading; moving capital between positions in short time periods to try to take advantage of trends and momentum. There is a lot less fundamental research and far more speculation. Patterns in charts and quick moves on headlines both factor into trading securities. Portnoy, among many others, has talked about cruise and airline stocks. If you watch his videos, he's buying and selling for that quick run in share pricing.
Traders have been gaining a great deal of credit for the volatile swings we've seen in the market over the last few days. Running, chasing, and selling.
Buffett invests. He seeks out incredibly strong businesses with a high degree of "moat" around their brand or product. Some have forgotten that Buffett's biggest moves were buying companies outright, like GEICO and Dairy Queen, and forming them into the conglomerate known as Berkshire Hathaway. It's not all about stocks to him -- even when he is nearly 90 years old, he still talks about investments from a long-term perspective.
The most valuable asset without question has been the privately held insurance entities. In gaining control of companies like GEICO, Buffett created what they call "float" to invest with. The premiums on insurance policies could be allocated to further investments. Rather than creating cash flow through trading, Buffett spent a great deal of his career building businesses with these insurance cash flows, which has provided him with more and more dry powder to invest.
Airlines are a prime example
United Airlines (NASDAQ:UAL) gained more than 10% on Monday, June 8. Fast forward to the close on June 11, and the stock was down around 20% for the week. Traders like Portnoy rejoiced on Monday and many likely sold their positions for profits, which plays into the stock's downturn through the rest of the week. For this short time frame, the stock trades on speculative coronavirus news, guidance within the industry, media commentary, and trading momentum. Traders look to make money off of this short-term chaos.
Warren Buffett looks at things very differently. He took a loss on his airline plays, albeit it might have been poorly timed, but the strategy has served him well through time. Airlines have taken on a lot of debt, which means repayments on that debt will detract from future earnings. Buffett also noted that the airlines are being forced to issue stock, which dilutes shareholder value. From that broader perspective, he's left positions that he doesn't think will outperform over the longer term.
You'll often hear Warren Buffett say that people should think of buying stocks as buying pieces of businesses. While a simple analogy, it's sums up the entire difference in mindsets between trading like Portnoy and a fundamental value-driven investor like Buffett.
Plenty of people have successful results trading. George Soros' strategies were more in line with trading than investing. It all depends on what works for the individual. While less exciting, fundamental value-based investing can offer opportunities for less risk, as the investments are based on the underlying merits of a company, whereas speculative forms waiver from value and into momentum of the shares themselves.