OMAHA, Neb. – In February, Warren Buffett complained that he couldn’t find much there worth buying.
That is no longer the case.
After years of deal drought, Mr. Buffett’s Berkshire Hathaway Inc.
open the spending tap again. It forged a $11.6 billion deal for insurer Alleghany Corp. to buy†
, poised to become Berkshire’s largest acquisition in six years. It bought millions of shares of HP Inc†
and Occidental Petroleum Corp†
And it has its stake in Chevron Corp. drastically enlarged†
making the energy company one of Berkshire’s top four equity investments.
The big question: why?
“It’s a gambling den,” Mr Buffett said on Saturday of the markets of recent years. He added that he blamed the financial sector for motivating risky behavior among investors. While he finds speculative betting “obscene”, the rebound in market volatility has had one good effect, he said: After a period of relative calm, Berkshire has once again found undervalued companies to invest in.
“We depend on mispriced companies through a mechanism where we are not responsible for mispricing,” said Mr. Buffett.
Mr. Buffett, aged 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 held votes on shareholder proposals, with investors eventually suspending measures that asked Berkshire to make its board chairman independent and called on the company to disclose climate risks for all of its operations.
Shareholders eager to score first-class seats queued for hours before the doors opened in the arena where Mr. Buffett; right-hand man Charlie Munger, 98; and Vice Presidents Greg Abel, 59, and Ajit Jain, 70, took the stage. When Mr. Buffett walked in, a lone member of the public took the opportunity to send a message. “We love you,” the person shouted.
Mr. Buffett seemed equally excited to see the thousands of shareholders sitting in front of him.
It was much better to be able to be personal with everyone, he said.
Until recently, Berkshire was largely on his money stack. The business thrived; a recovering economy and a roaring stock market helped push net profit to a record high in 2021. But no major deals were announced, something that left many analysts and investors wondering what the next steps would be. Berkshire closed the year with a near-record amount of cash. (After Berkshire’s buying frenzy, the company’s war 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 gave way to excitement in late February, he said Saturday, when he received a copy of the annual report from Joseph Brandon, CEO of Alleghany.
The report piqued his interest. He decided to contact Mr. Brandon and fly to New York City to discuss a possible deal over dinner.
If the chief executive had not been contacted, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,'” said Mr. Buffett.
Berkshire’s decision to build a 14% stake in Occidental also came about with a report. Mr. Buffett said he read an analyst note about the company, whose shares are still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.
In just two weeks, Berkshire acquired millions of shares of the company.
“I don’t think we’ve ever had anything like it now in terms of the amounts of pure gambling activity that happens on a daily basis,” said Mr. Munger. “It’s not pretty.”
But the amount of speculation in the markets has given Berkshire a chance to spot undervalued companies, Mr Munger said, helping the company put its $106 billion cash reserve to work.
“I think we made more money thanks to the crazy gambling,” said Mr. Munger.
Another company that caught Berkshire’s attention? Chevron. Berkshire’s stake in the company was worth $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four largest stocks, alongside Apple†
american express co. and Bank of America Corp.
Neither Mr Buffett nor Mr Munger specifically commented on Berkshire’s decision to increase its stake in Chevron.
But the two men offered a defense of the oil industry. It’s a good thing that the US is starting to produce more of its own oil, Buffett said. Mr. Munger went on to say that 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 now holds a 9.5% position in Activision, a merger arbitrage bet that Berkshire could capitalize on if Microsoft Corps
proposal to acquire the video game maker goes through.
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At the end of the day, Berkshire tries not to make its investments based on what it thinks the stock market will do when it opens every Monday, Mr. Buffett said.
“I Can’t Predict What” [a] stock will do… We don’t know what the economy will do,” he said.
What Berkshire is focused on is doing what it can to continue to generate returns for its shareholders, Mr. Buffett said. Berkshire posted 20% annualized compound profit between 1965 and 2020, compared to the S&P 500, which returned 10% including dividends over the same period.
“The idea of losing someone else’s money forever… that’s just a future I don’t want to have,” said Mr. Buffett.
Write to Akane Otani at [email protected]
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