“We always have so much fun when you come to visit,” said the CEO of the Berkshire Hathaway conglomerate on Saturday. The 91-year-old, who shared the stage with his three vice-chairmen Charlie Munger, Ajit Jain and Greg Abel, had big news to announce.
During the first quarter, it bought $51.1 billion worth of shares, according to earnings results also released on Saturday. That’s a clear departure from the dovish strategy that has dominated the past several years.
Berkshire has significantly increased its stake in oil company Chevron. The stake is now worth just under $26 billion and is one of his top five holdings. Combined with Occidental Petroleum’s stock purchases over the past few weeks, Buffett now has more than $40 billion invested in the oil industry, according to Edward Jones analyst Jim Shanahan.
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Berkshire’s cash reserves therefore decreased significantly. They were at $106.3 billion at the end of March. At the end of December they were just under $147 billion.
Buffett and his two investment managers, Ted Weschler and Todd Combs, made most of these purchases in just over three weeks. Between February 21 and March 15, they spent $41 billion on stocks. “We have an employee in our office who executes the trades,” Buffett explained. “And he doesn’t have an assistant, he’s just spending $41 billion.”
Berkshire Hathaway’s net income has fallen
In April, however, Berkshire made no purchases. Buffett sold over $10 billion worth of stock in the first quarter.
Berkshire Hathaway’s net income was $5.5 billion, down significantly from a year earlier. However, the result is subject to fluctuations because paper profits and losses have to be shown there as well. Operating profit is $7 billion, slightly better than a year ago.
Buffett’s railroad, industrial, and energy businesses were particularly strong. The insurance business, meanwhile, was poor, with profits falling from $764 million to $47 million.
These are the highlights of the Annual General Meeting:
A festival for “quality shareholders”
It is a unique general meeting for a unique group. “Buffett has made a lot of shareholders rich,” said Larry Cunningham, a law professor at Georgetown University in Washington who has written several books on Berkshire.
This has led to shareholders not selling their shares and celebrating Buffett like a rock star. The conglomerate, which also includes a good 80 medium-sized companies and a block of shares worth a good 390 billion dollars, relies on “quality shareholders”, as Buffett calls his shareholders. In the world of fast-paced stock trading, the Berkshire boss is a counter-pool. “A lot of people who trust us rightly believe that they are our partners,” Buffett said.
Buffett’s Berkshire Hathaway significantly reduced cash reserves in the first quarter and bought millions of new shares.
(Photo: Reuters)
He has an “extreme aversion” to losing his shareholders’ money. This action shapes his behavior as an investor. And he has no interest in getting rid of his shareholders, Buffett clarified. Apple boss Tim Cook was also among the guests in Omaha. Buffett has invested in the iPhone maker since 2016 and is Apple’s largest single investor. “I’m just proud that he’s invested in our company,” Cook said to the cameras as he walked the main exhibition hall. As every year, products from the companies that belong to Buffett’s empire are on display there: T-shirts and sneakers from the sporting goods manufacturer Brooks, a private plane from the jet rental company Net Jets, a model railway from BNSF.
Buffett looks with concern at the increasing dominance of index funds, which are also gaining increasing influence in voting at general meetings and are weakening the connection between corporations and their shareholders. “The rest of Corporate America is very different from us,” said Charlie Munger. Berkshire does not provide earnings forecasts and is therefore never tempted to manipulate numbers in order to achieve goals.
Buffett has asserted that the core pillars of the company’s culture will not change even if he and Munger one day are no longer at the helm of the conglomerate. Berkshire stock surpassed $500,000 for the first time in March, making it America’s most expensive stock. This is also good protection against activist investors, who traditionally call for far-reaching changes in strategy.
Keep looking for deals
Buffett has significantly reduced his cash reserves in recent months, but the Berkshire boss is still looking for deals, as he assured on Saturday. “We see so few good options, we can’t afford to overlook anything,” he clarified.
In Germany, too, he is still looking for takeover targets and he prefers it if “offers fall into our laps”, as was the case with Berkshire’s takeover of the motorcycle dealer Louis from Hamburg. However, Berkshire is picky. “We’re looking at some transactions for Berkshire, but we need larger volumes for the group’s headquarters in Omaha,” says Zypora Kupferberg in an interview with the Handelsblatt, who is looking for deals for Buffett in Germany and also engineered the Louis takeover.
Buffett had announced a series of deals in recent weeks: In March, the company announced the purchase of the US insurance group Alleghany for $11.6 billion. At the beginning of April it was announced that Buffett and his holding company had entered the computer group HP on a large scale. He bought 121 million shares, which based on the closing price at the time, resulted in a package value of approximately $4.2 billion. Buffett also increased his stake in Occidental Petroleum. Buffett’s offensive is doing well in the stock market. The paper gained 7.5 percent this year. The broader S&P 500 stock index, which Buffett likes to compare himself to, lost 13 percent.
“Powerless” against nuclear risks
Buffett and Greg Abel, head of Berkshire’s energy division, were thoughtful when asked by a shareholder about the risks of nuclear attacks. “We live in a very, very, very dangerous world,” Buffett said. But “we are powerless against an attack. We have no solution, and there is no solution to it,” he clarified. Berkshire’s insurance arm would explicitly not insure its against nuclear risks. But Abel assumes that in an emergency, insurers could be obliged to pay for damage. “But only if there are also politicians and regulators,” Buffett joked.
However, Berkshire actively defends itself against cyber attacks, which are launched daily against all areas of the group, especially against the energy suppliers, which belong to Berkshire’s energy division. “The cooperation between us and the government works very well here,” Buffett clarified.
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