OMAHA, Nebraska — As recently as February, Warren Buffett lamented he wasn’t finding much out there that was worth buying.
That is no longer the case.
After a yearslong deal drought, Buffett’s Berkshire Hathaway Inc. is opening up the spending spigot again. It forged an $11.6bn deal to buy insurer Alleghany, poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of HP. and Occidental Petroleum. And it dramatically ramped up its stake in Chevron, making the energy company one of Berkshire’s top four stock investments.
The big question: Why?
“It’s a gambling parlour,” Buffett said on 30 April of the markets over the past few years. He added that he blamed the financial industry for motivating risky behaviour among investors. While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet.
“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Buffett said.
Buffett, 91 years old, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.
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Berkshire also held votes on shareholder proposals, with investors ultimately striking down measures that asked Berkshire to make its board chairman independent and called for the company to disclose climate risk across its businesses.
Shareholders eager to score prime seats lined up for hours before the doors opened in the arena where Buffett; right-hand-man Charlie Munger, 98; and vice chair Greg Abel, 59, and Ajit Jain, 70, took the stage. As Buffett entered, a lone audience member took the opportunity to send a message. “We love you,” the person shouted.
Buffett appeared equally enthused to see the thousands of shareholders sitting before him.
It was a lot better being able to be with everyone in person, he said.
Up until recently, Berkshire had largely been sitting on its cash pile. Its business thrived; a recovering economy and roaring stock market helped push net earnings to a record in 2021. But it didn’t announce any major deals, something that led many analysts and investors to wonder about its next moves. Berkshire ended the year with a near-record amount of cash on hand. (After Berkshire’s buying spree, the size of the company’s war chest shrank to $106.26bn at the end of the first quarter, from $146.72bn three months earlier.)
Buffett’s feeling that there were no appealing investment opportunities for Berkshire quickly gave way to excitement in late February, he said on 30 April, when he got a copy of Alleghany Chief Executive Joseph Brandon’s annual report.
The report piqued his interest. He decided to follow up with Brandon, flying to New York City to talk about a potential deal over dinner.
If the chief executive hadn’t reached out, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,’” Buffett said.
Berkshire’s decision to build up a 14% stake in Occidental also came about with a report. Buffett said he had read an analyst note on the company, whose stock is still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.
Over the course of just two weeks, Berkshire scooped up millions of shares of the company.
“I don’t think we ever had anything quite like we have now in terms of the volumes of pure gambling activity going on daily,” Munger said. “It’s not pretty.”
But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Munger said, allowing the company to put its $106bn cash reserve to work.
“I think we’ve made more because of the crazy gambling,” Munger said.
Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company was worth $25.9bn as of March 31, up from $4.5bn at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four biggest stockholdings, alongside Apple, American Express and Bank of America.
Neither Buffett nor Munger specifically addressed Berkshire’s decision to increase its Chevron stake.
But the two men offered a defence of the oil industry. It is a good thing for the US to be producing more of its own oil, Buffett said. Munger went further, saying he could hardly think of a more useful industry.
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At the meeting, Buffett also revealed that Berkshire has increased its stake in Activision Blizzard. The company now holds a 9.5% position in Activision, a merger-arbitrage bet from which Berkshire stands to profit if Microsoft’s proposal to acquire the videogame maker goes through.
At the end of the day, Berkshire doesn’t try to make its investments based on what it believes the stock market will do when it opens each Monday, Buffett said.
“I can’t predict what [a] stock will do…We don’t know what the economy will do,” he said.
What Berkshire focuses on is doing what it can to keep generating returns for its shareholders, Buffett said. Berkshire produced 20% compounded annualised gains between 1965 and 2020, compared with the S&P 500, which returned 10% including dividends over the same period.
“The idea of losing permanently other people’s money…that’s just a future I don’t want to have,” Buffett said.
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This article was published by The Wall Street Journal, part of Dow Jones