Warren Buffett spends big while the stock market sells off

Not for Warren Buffett and his team.

Buffett’s Berkshire Hathaway Inc. has used the slump as an opportunity to ramp up spending on stocks, rolling out tens of billions of dollars in recent months after ending 2021 with a near-record pile of cash.

The Omaha-based company bought 901,768 shares of Occidental Petroleum Corp. last week, according to a regulatory filing. The move likely makes Occidental, in which Berkshire began buying shares in late February, one of its 10 largest holdings.

In recent months, Berkshire has also increased its stake in Chevron Corp., placed a merger arbitrage bet on Activision Blizzard Inc., bought an 11% stake in HP Inc. and continued to increase its position in Apple Inc., its largest ownership.

Investors will see what else Berkshire has been buying, as well as what it has been selling, when it files what is known as Form 13F with the Securities and Exchange Commission on Monday. The SEC requires all institutional investors managing more than $100 million to file within 45 days of the end of each quarter. Because institutions must disclose their capital holdings on the form, as well as the size and market value of each position, investors often use 13F to measure the amount of money managers are gambling in the stock market. .

One takeaway from Berkshire’s presentation is likely to be this: the market turmoil has allowed the company to spend unrestrained.

Mr. Buffett, a longtime value investing practitioner, has long advised investors to “be greedy when others are fearful.” That philosophy was probably difficult to practice for much of the past two years, during which the investor mood seemed anything but fearful. Now that the market is tanking, Berkshire is in a prime position to add to its huge stock portfolio, investors say.

“Cash is dry powder, and it has a lot of it,” said Rupal Bhansali, chief investment officer for global equities at Buffett’s Ariel Investments. Bhansali manages Ariel’s global mutual fund, which owns Berkshire shares.

Ms Bhansali, among others, also believes that Berkshire’s investments in Chevron and Occidental could reflect a bet that commodity prices will remain high for some time.

Energy stocks have been by far the best performing group in the S&P 500 this year, benefiting from a surge in commodity prices that began after the Russian invasion of Ukraine raised concerns about disruptions to oil and gas supply lines. Chevron shares are up 43% this year, while Occidental shares are up 121%. By comparison, the S&P 500 is down 16%.

“Clearly, they own companies that are likely to be an inflation hedge,” Bhansali said.

Energy stocks also offer two characteristics that Buffett has traditionally gravitated towards: low valuations as well as returns for shareholders in the form of buybacks and dividends, said Jim Shanahan, senior equity research analyst at Edward Jones.

Dividend-paying stocks have outperformed the S&P 500 this year, in part because investors battered by market volatility have sought out stocks that can offer consistent cash returns.

“It fits the bill,” Shanahan said of Berkshire’s purchases of Chevron and Occidental shares.

With stock volatility remaining elevated, many investors and analysts expect Buffett, as well as Berkshire portfolio managers Ted Weschler and Todd Combs, to continue to put cash to work in the market over the coming months.

Berkshire ended last year with a mountain of cash on its hands, not necessarily because of a desire to build its war chest, but because it had been impossible to find companies worth investing in for the long term, Buffett told shareholders at his annual letter sent in February. It had $106.3 billion in cash as of March 31, up from $146.7 billion at the end of 2021.

This year has changed that. With tighter monetary policy, slowing economic growth and sustained supply chain disruptions making markets nervous, Buffett is in his element, said David Kass, a finance professor at the Robert H. Smith School of Business. from the University of Maryland.

“This is what I would consider Warren Buffett’s sweet spot,” Kass said. “The near wholesale market has given Berkshire the opportunity to buy securities at bargain prices.”

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