USA TODAY: Buffett vs. Cohen: Which one's right?

04/16/2001 - Updated 12:33 PM ET

Wall Street's star bull Abby Joseph Cohen's market calls were gospel when stocks were going up every day. The slow-and-steady discipline of Warren Buffett was dismissed as ancient history. Then came the bear market. Now, Buffett's reputation — and his stock — are rising again. Cohen's influence has dimmed amid talk she's lost her touch. USA TODAY's Adam Shell and Matt Krantz chronicle the investment gurus' changing fortunes.

At the height of the bull market, every time Warren Buffett warned that stocks were overvalued and due for a nasty fall, investors shrugged off his advice. "He was becoming extinct," says David Sowerby, portfolio manager at Loomis Sayles. "People said he simply didn't get it anymore."

But Abby Joseph Cohen, Wall Street's leading cheerleader who called the 1990s bull market just right, did get the "new era" of investing. When Cohen spoke, people listened. Any time Goldman Sachs' top strategist said bullish things in missives to clients or in sound bites on CNBC, investors saw it as a signal to buy. "She had the right call for a long time," says Howard Ward of Gabelli Asset Management.

Times have changed. Buffett, chairman of Berkshire Hathaway and arguably the world's best investor, is back in vogue. He no longer looks out of touch for shunning tech stocks. Berkshire shares bottomed the day the Nasdaq peaked on March 10, 2000. Since then they're up 55%, and the Nasdaq is down 61%.

"People that thought Buffett had lost it last year now think he's brilliant," says Robert Miles, author of 101 Reasons to Own The World's Greatest Investment.

Now, some Wall Street pros are wondering if Cohen has lost her touch. She's no longer moving markets as she used to. Despite repeated assertions stocks are undervalued, they've fallen further. "Abby was hot for a while and people listened, but you can't stay hot forever," says John Forelli of Independence Investment.

It's unfair to making sweeping judgments based on such a short period of time. But the market's sudden crash has highlighted a dramatic shift from Cohen's growth-driven investing style to Buffett's "buy at a discount price" approach.

Last year, Berkshire had its second-best year in a decade, as its book value increased nearly 16 percentage points more than the Standard & Poor's 500 index. Buffett suffered his worst year ever in 1999, when his 0.5% return lagged the S&P's 20% rise, and the Nasdaq's 85.6% surge.

Cohen, though, has been out of step with the market the past 6 months. On Oct. 3, 2000, she told clients "The backdrop for tech investments is favorable." The Nasdaq has tumbled 43% since then. More recently, she advised clients on March 7 to up their weighing of stocks to 70% from 65%. The S&P 500, Nasdaq and Dow industrials have all declined since then. Cohen "has been wrong for quite some time," says Bill Meehan, chief market analyst at Cantor Fitzgerald.

To be sure, Cohen's long-term record is stellar. Since turning bullish on stocks back in 1991, the S&P 500 is up 215%. That same period, Berkshire Hathaway shares gained 689%.

Frequent TV appearances have helped Cohen's ability to spread her message. Buffett, who wouldn't comment for this story, rarely discusses the market publicly.

Critics say Cohen's optimism in a bear market hurt individuals. "The retail public has had a much greater degree of faith in big analyst calls," notes Ward. Rico Manalang, 30, an investor in Springfield, Va., says he's lost money listening to Cohen: "She tends to excite short-term investors."

Cohen says investors shouldn't act on her forecasts unless they read her entire report, which often runs 100 pages. "It's unfortunate that people may get a 2-minute view from a TV appearance and think that's my full body of work," Cohen says.

"People misunderstand what my job is," Cohen says. "I try to provide clients with the best advice I can about the next 6 to 12 months. It is in error for people to think that I'm trying to predict what the market is going to do the next day."

Of course, comparing Buffett with Cohen is awkward. "Buffett is a very long-term investor who is actually investing billions of dollars," Ward says. "Abby's not investing anything. She's giving professional advice."

Buffett focuses on companies that he can hold forever. He's famous for scooping up boring, predictable companies at cheap prices. "We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement," he wrote to shareholders this year.

Cohen made her name making broad market predictions on macro economic trends. She looks for sectors that are undervalued according to her models. Unlike Buffett, she's willing to pay more for growth stocks, including techs.

Getting famous on Wall Street is tough. Staying there is tougher. Many a guru, praised as an idol after predicting a market cycle, has fallen out of favor. "Every market has a favorite pundit, someone who embodies that period of time," says Gibbons Burke of MarketHistory.com.

Wall Street history is filled with gurus who fizzled out, Burke says. Newsletter writer Joe Granville was held up as a genius after calling the end of the 1970s bear market. Strategist Elaine Garzarelli made headlines when she predicted the 1987 crash. Robert Prechter called the bull market of '82 and the crash of '87. None is a household name, today.

And as Buffett's disciples didn't abandon him, experts say that it'll take more than a bear market to wipe Cohen out of the mainstream.

"Abby will always have her voice," says Lawrence Cunningham, author of How to Think Like Benjamin Graham and Invest Like Warren Buffett.

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