Why Warren Buffett’s Strategy is Faltering

Market Update - Monday, 27 Apr

It has been a decent start to the week, with some sources suggesting that Iran is willing to let the Strait of Hormuz open, though nothing is very clear right now. Nevertheless, the market reaction suggests that there is some hope and optimism building up.

Today, there is a discussion about long-term performance, using the classical example of Warren Buffett and his company, Berkshire Hathaway, which has done extremely well for investors over the long term.

Looking at the markets, Nifty is nicely up 0.81%, recovering some of the damage done in the last three days, although it remains in negative territory on medium to long-term charts.

• Nifty Junior has recovered very well; it only had two days of fall and gained more than 1.3% today itself after a very good recovery on Friday. This looks much more positive than Nifty, with midterm and long-term trends being positive.

• Midcaps are up 1.47%, almost erasing all recent losses, which tells of the strength in the bottom part of the market.

• Small caps are up 1.82%, almost reaching the highs of 2026. This data indicates that small caps, midcaps, and even Nifty Next 50 are willing to go up, whereas Nifty is still sluggish.

• Bank Nifty is also sluggish at 0.31%, but it has not fallen as much and remains near highs, less than 10% or just about 10% away.

• In other markets, gold remains absolutely flat, and oil is maintaining $101. If the position were worsening, prices like $120 or $125 would likely be seen by now, but there is some sense of control near $100 on crude oil.

• There was disturbing news regarding the U.S. sanctioning a Chinese refinery to make sure Iranian revenue from crude oil drops. While China has been away from this war narrative, poking them could be catastrophic, but so far, crude oil is maintaining about $101, so we can stay a bit safe there.

Other Market Triggers

• The advance-decline trend was 447 to 52, which is a complete annihilation of sellers, with 90% of stocks moving up.

• There were some losses in Axis Bank and Shriram Finance, but very nice gains in Reliance, some IT stocks recovering, Sun Pharma leaping up massively, and Adani Ports and NTPC doing really well.

• Nifty Next 50 also had good gains in commodity sectors like Vedanta, Hindustan Zinc, Varun Beverages on results, Adani Power, and Tata Power, as the energy sector is certainly doing very well.

• Among the movers of the day, Tanla moved up 20% on Q4 results and a dividend announcement, recovering smartly after being beaten down.

• Cohance is also up 20% on the news of a new chief and chairman coming in.

U.S. Market Updates

• In the previous session of U.S. markets on Friday evening, there was a smashdown in Charter Communications, Comcast, Deere, Eli Lilly, and Lockheed Martin, with some down as much as 25% and 13%.

• Although the index was flat at 0%, the S&P 500 gained 0.8% and the NASDAQ gained 1.95%. Looking at the NASDAQ heat map, Nvidia is back at the top, while AMD and Intel are running like never before, with Intel up 23% and AMD up 14% in a day. These stocks could be part of the Weekend Investing U.S. stock strategy.

• This is an amazing run, and that is exactly what momentum does; you will find winners when you are not expecting them. This is the design of the momentum strategy that causes this from time to time during a huge bull run. The rest of the market in the U.S. was also quite good, with only Apple being sluggish for a bit.

What to watch next ?

• Regarding the Avis car rental case, a short squeeze caused the stock to go up from $100 to almost $800 after two hedge funds cornered the market. However, trees don't grow to the skies. Even if only one buyer is cornering all the stock, there is a tipping point beyond which accumulation is pointless because they must sell at some point to realize the gain. Short sellers who shorted at $150 to $100 would have seen their mark-to-market margins hit like crazy, and retail investors who thought the company might revive may now be stuck for years.

• Always know what game is going on and have checks and balances for when to get in and out. A 750% gain in three weeks followed by a 75% crash in two days shows how brutal markets can be.

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What To Read This Week ?

The "Small-Cap Surge" Phenomenon

The Catalyst for Small-Cap Explosions

Samit Vartak recently highlighted a compelling pattern regarding the Nifty Smallcap 100 index. His research identifies six historical instances—spanning 2006, the GFC (2008), 2015-16, the post-COVID recovery, 2022, and the 2024-25 period—where the index surged by at least 15% within a short 15-day window.

The data suggests that these rallies are not random; they typically emerge from deep periods of market despondency. When hope is exhausted, the market reaches an "oversold" state with extremely low ownership, creating the perfect springboard for a sharp, aggressive rebound.

The Power of Seasonality and Momentum

A recurring theme in this data is seasonality, particularly around the February-March period, which has often acted as a structural bottom for small-cap stocks.

When the market delivers that initial 15% thrust in just 15 days, it serves as a powerful signal of a regime shift. Vartak’s study tracked the performance of the index following these "15-day/15-percent" triggers over subsequent windows of 1, 3, 5, 10, 20, 40, and 60 days. The results are striking:

• Average Gains: Across these six instances, the index delivered an average gain of approximately 49% within just two months following the trigger.

• Performance Range: The outcomes were consistently robust, ranging from a "modest" 25-28% to an extraordinary 115% in specific historical cycles.

High Probability vs. Certainty

While this data provides a strong analytical framework for understanding momentum, it is crucial to maintain a balanced perspective. This is a high-probability setup, not a guaranteed outcome.

Market cycles are influenced by a multitude of macroeconomic variables, and past performance is never a definitive roadmap for the future. However, for investors looking at the current trajectory—where we are roughly 15 days into such a move—the data suggests that if history repeats, the next 45 days could potentially see the index build on this momentum significantly.

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