It was one of the worst stock market quarters in a long time, but Warren Buffett did not stare like a rabbit in the headlights. He seized the correction to buy more than 41 billion dollars worth of promising and punished shares. Result: his investment vehicle Berkshire Hathaway outperformed the S&P 500.
On Saturday, more than 40,000 shareholders gathered in Omaha, Nebraska, celebrating the wisdom of the 91-year-old contrarian, also known as the Oracle of Omaha. Deep in the American Midwest, Berkshire held a physical shareholders’ meeting for the first time since the Covid-19 crisis. Fans had come from all over the world, including some from the Netherlands. Among them, Clayton Heijman, CEO and founder of Privium Fund Management, who attended the meeting with his son Sebastiaan.
“At first, Buffett was looking for words. He wanted to do it right. But when the shareholders were allowed to ask their questions, and there were questions to his liking, he got off to a good start,” said Heijman in a whatsapp call with Investment Officer during the break.
Substantial, profitable allocation to oil
Berkshire increased its stake in Chevron substantially, which had a market capitalisation of 25.9 billion dollars at the end of the first quarter, compared to 4.5 billion dollars at the end of 2021/2022. In the same period, the oil company Chevron rose 30 percent in value.
The investment vehicle of CEO Buffett and vice-chairman Charlie Munger also bought 7 billion dollars worth of shares in Occidental Petroleum. This was not easy, because 60 percent of this share capital is held by index investors like BlackRock and Vanguard. This brings Berkshire’s exposure to the US energy sector to over 40 billion dollars. In addition to price gains, the oil sector also yields a hefty dividend yield: 4.7 percent on average, compared with 1.5 percent for the S&P 500.
Berkshire Hathaway also increased its stake in HP and insurer Alleghany, while the heart of the investment portfolio consists of Apple (equity stake: USD 159 billion), Bank of America (USD 42.6 billion) and American Express (USD 28.4 billion).
Berkshire remains cash-rich
The purchases, made during a declining market, underlined that Buffett first and foremost is a value investor and that he remained so throughout his professional life. In this context, he also defended the fact that Berkshire had no less than USD 140 billion in cash on its balance sheet at any given time. The reason was that the investment vehicle did not see any companies worth buying, because everything was priced far too high in the management’s opinion.
Buffett said Berkshire would always remain a “cash-rich” company. It also allows the company - in times of need - to provide companies with access to lines of credit. For example, in the Great Financial Crisis of 2008/2009, Berkshire Hathaway backed Goldman Sachs and made a hefty book profit on it.
‘We have no idea what the market is doing’
Buffett said the purchases made were not about timing. “We have no idea what the stock market will do when it opens on Monday morning. I don’t think we’ve ever made a decision to buy or sell a stock based on what the market or the economy is going to do. We just don’t know.”
“We’re not good at timing. We’re pretty good at figuring out if we’re getting enough value for our money, though,” he added.
Buffett took a swipe at brokers. He said they make more money with call options than with simply investing. But market dislocations also give Berkshire opportunities. ‘When markets do crazy things, it occasionally gives Berkshire opportunities to do something,’ the investment guru said.
Charlie Munger, who now has the respectable age of 98, and the position of vice-chairman
Buffett, who enjoyed biscuits, nuts and chocolates and a Coca-Cola during his meeting, always came up with witty and sharp comments.
“We have people who know nothing about shares and who are advised by brokers who know even less about them. It is an incredible, crazy situation. I don’t think any wise country wants this outcome. Why would you want your country to trade stocks like a casino?”
He called the Robinhood trading platform “a good idea, which is now over its top”. He said there are “hidden kickbacks” that make the platform’s revenue model “disgusting”. “It’s unraveling. God is getting just,” he said.
Munger also reiterated, in response to a question from the audience, that he sees no value in bitcoin. He doesn’t think it’s suitable for retirement, which may have been a sneer at Fidelity, which last week allowed its employees to include bitcoins in their retirement plans. Buffett later backed him up on this point at the shareholder meeting.
‘Buffett is a unique person’
Although the hour-long segment of the traditional question-and-answer is a recurring highlight of what has been called the Woodstock of Capitalism, Clayton Heijman of Privium was particularly impressed by the fact that Berkshire Hathaway had used the first quarter of this badly started stock market year to buy more than $40 billion worth of shares in various companies.
Reacting from the stadium in Omaha - where Buffett has lived all his life - Heijman does not hide his admiration for The Oracle of Omaha. He effortlessly recites ratios, figures and events from, for example, 1963. That makes him a unique person.
Heijman said that Charlie Munger, who is almost 100 years old, took a very outspoken stand for his decades-long business partner Buffett. He did this in reaction to a suggestion made last month by the American pension fund Calpers that Buffett cannot combine his position of CEO and chairman and should give up one of the two positions for reasons of corporate governance.
Munger: “That is the most ridiculous criticism I have ever heard. It is like Odysseus coming back from the war for Troy that he won and someone saying: ‘I don’t like the way you were holding your spear when you won that battle’.”
When this motion was put to the vote, it was overwhelmingly defeated by the shareholders. The brief triumphant smile on the face of the almost 100-year-old spoke volumes.
This article originally was published on InvestmentOfficer.nl.