OMAHA, Neb. “Back in February, Warren Buffett complained that he didn’t find many things worth buying.”
This is no longer the case.
After years of drought in the deal, Berkshire Hathaway Inc. Mr. Buffett’s BRK.B -2.55% reopens the cost tap. He struck a $ 11.6 billion deal to buy insurer Alleghany Corp. Y -0.62%, which is expected to be Berkshire’s largest acquisition in six years. It bought millions of shares in HP Inc. HPQ -2.53% and Occidental Petroleum Corp. OXY -3.40% and dramatically increased its stake in Chevron Corp. CVX -3.16%, making the energy company one of the four largest equity investments in Berkshire.
The big question: Why?
“This is a gambling salon,” Mr Buffett said Saturday about markets over the past few years. He added that he blames the financial industry for motivating risky behavior among investors. Although he found speculative bets “indecent”, increasing market volatility has had a good effect, he said: This has allowed Berkshire to find undervalued businesses to invest in again after a period of relative calm.
“We depend on businesses with the wrong prices through a mechanism where we are not responsible for incorrect pricing,” said Mr Buffett.
Mr Buffett, 91, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholders’ meeting in downtown Omaha.
Berkshire also voted on shareholders’ proposals, with investors eventually repealing measures that asked Berkshire to make its board chairman independent and called on the company to expose climate risk to its business.
Shareholders eager to win first-class seats, lined up hours before the doors open in the arena where Mr. Buffett is; right hand Charlie Munger, 98; and Vice Presidents Greg Abel, 59, and Ajit Jain, 70, took the stage. When Mr. Buffett came in, a single member of the audience took the opportunity to send a message. “We love you,” the man shouted.
Mr. Buffett seemed just as excited to see the thousands of shareholders sitting in front of him.
It was much better to be able to be with everyone in person, he said.
Until recently, Berkshire was largely sitting on its pile of money. His business is booming; The recovering economy and booming stock market helped bring net profits to a record high in 2021. But it did not announce any major deals, something that has led many analysts and investors to wonder about its next steps. Berkshire ended the year with an almost record amount of cash. (Following the tumultuous acquisition of Berkshire, the company’s military chest shrank to $ 106.26 billion at the end of the first quarter from $ 146.72 billion three months earlier.)
Mr Buffett’s sense that there were no attractive investment opportunities for Berkshire quickly changed to excitement in late February, he said on Saturday when he received a copy of Alleghany CEO Joseph Brandon’s annual report.
The report aroused his interest. He decided to contact Mr. Brandon by flying to New York to talk about a potential deal over dinner.
Warren Buffett went to speak with shareholders at Berkshire Hathaway’s annual meeting in Omaha, Nebraska, on Saturday.
Photo: SCOTT MORGAN / REUTERS
If the CEO hadn’t contacted me, it wouldn’t have occurred to me to write to him and say, “Let’s get together,” Mr. Buffett said.
Berkshire’s decision to gain a 14% stake in Occidental also came with a report. Mr Buffett said he had read an analytical note on the company, whose shares were still trading at its highest level since 2011, and decided that casino-like market conditions were a good time to buy the shares.
In just two weeks, Berkshire grabbed millions of shares in the company.
“I don’t think we’ve ever had anything like this now, in terms of the amount of pure gambling that happens every day,” Mr Munger said. “It’s not beautiful.”
But the volume of market speculation has given Berkshire a chance to spot undervalued businesses, Mr Munger said, allowing the company to use its $ 106 billion cash reserve.
“I think we won more than crazy gambling,” Mr Munger said.
Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company is worth $ 25.9 billion as of March 31, compared to $ 4.5 billion at the end of 2021, according to company documentation. This makes Chevron one of Berkshire’s four largest stocks, along with Apple’s American Express Co. and Bank of America Corp.
Neither Mr Buffett nor Mr Munger specifically referred to Berkshire’s decision to increase its stake in Chevron.
But the two men offered to protect the oil industry. It is good for the United States to produce more than its own oil, Mr Buffett said. Mr Munger went further, saying he could hardly think of a more useful industry.
At the meeting, Mr. Buffett also revealed that Berkshire has increased its stake in Activision Blizzard Inc. The company already holds a 9.5% stake in Activision, a merger and arbitration pledge that Berkshire could win if Microsoft Corp.’s offer. acquisition of video game maker goes through.
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After all, Berkshire is not trying to make its investments based on what it believes the stock market will do when it opens every Monday, Mr Buffett said.
“I can’t predict what [a] “We will know what the economy will do,” he said.
What Berkshire is focusing on is doing what it can to continue to generate returns for its shareholders, Mr Buffett said. Berkshire generated 20% of compounded annual profits between 1965 and 2020, compared to the S&P 500, which returned 10% including dividends for the same period.
“The idea of losing other people’s money forever… it’s just a future I don’t want to have,” Mr Buffett said.
Write to Akane Otani at akane.otani@wsj.com
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