Warren Buffet Buying Now!

Update from the Lookouts:  Memories of Our Children’s Youth

We enjoyed seeing everyone at the Lookouts game last Friday night.  Getting a chance to spend time with clients and their families is something I always look forward to.  We’ve seen a lot of kids and grandkids “grow up” over the years coming to the game.  I remember years ago in 2008 bringing Jack to this event when he was less than a month old and Sydney’s sense of wonder watching the fireworks afterward (she was two at the time).  This year Walker threw the “first pitch” before the game. He and his siblings are a little more reserved with their parents now, but we all still enjoy the game.
The kids bring their friends now and we don’t see as much of them. Sydney drove herself to the game for the first time this year.  After saving up half of the funds to purchase her first car, she was able to drive it home on her birthday a couple weeks ago.  Hopefully time doesn’t move too quickly to enjoy having them with us over the next few years as we are already talking about colleges with Sydney, Walker is starting McCallie, and Jack is entering the high school.

Memories of Past Buying Opportunities

During the summer of 2008, the markets were showing signs of cracking, but the financial collapse was not upon us yet.  Concerns were building in various areas of the markets with the housing bubble and significant leverage in the system.  The Federal Reserve had started raising rates in 2004 and ended their rate hike cycle in late 2006 when they became more concerned about a recession than possible inflationary pressures.  The market peaked in 2007 and the recession was upon by 2008.  But the “smart money” did not start buying until late 2008 and early 2009.

 

Following the “Smart Money” Through Insider Filings

If we want to track when the most knowledgeable investors are buying, we only have to look to the SEC filings to see this.  Company CEOs tend to know more about the companies they run than anyone else.  So why wouldn’t we want to be buying when they are?  One notable example of this was in February 2016 when Jamie Dimon bought over $25 Million of JP Morgan stock.  This marked the bottom of the market at the time.
The chart below shows the CEO buying to selling ratio for May 2022 and other similar months.  Over the last 15 years, the average gain of the S&P 500 when CEO buying was this high or higher exceeded 13% over the next 6 months and 28% over the next year. The “smart money” is telling us that they believe we are getting close to a bottom.  We can definitely go lower from here, but many (including some of the most well informed, knowledgeable and experienced CEOs) believe it is time to start buying.

What is Warren Buffett Buying Now?

Billionaire investor Warren Buffett has used the ongoing market selloff as an opportunity to buy the dip and add several new major positions recently.  He related much of his thinking about his purchases earlier this month during the Berkshire Hathaway shareholders meeting. It’s interesting to note that Buffett told shareholders in his annual letter on Feb. 26 that he was having trouble finding anything to buy at attractive prices, but Berkshire spent more than $40 billion on stocks over the next three weeks.  He also repurchased $3.2 billion of Berkshire Hathaway shares and agreed to buy the Alleghany insurance conglomerate for $11.6 billion during the first quarter alone. This is the greatest volume of purchases Buffett has made in any one quarter since 2008.

During the annual shareholders meeting, Buffett didn’t reveal everything he bought but did mention several highlights, including boosting Berkshire’s stake in oil giant Chevron to $26 billion, up from $4.5 billion at the beginning of the year to make it one of the conglomerate’s four biggest investments. Berkshire also spent billions buying up over 14% of Occidental Petroleum’s shares in the first half of March (continuing to add to his position this past week as well) and added to its investment in Apple stock.
Buffett disclosed several new stakes recently, including 55 million shares of Citigroup (worth around $2.6 billion), 69 million shares of media giant Paramount Global (worth around $1.9 billion).  He also mentioned buying stock in three German companies but didn’t name them.
Berkshire Hathaway now owns roughly 159 million shares in Chevron (worth around $27 billion), 143 million shares of Occidental (nearly $10 billion), 121 million shares of HP (over $4 billion) and 64 million shares of Activision ($5 billion).   The company also added a new $390 million stake in Ally Financial last quarter.

Why is Buffett Buying Now?

Despite his roots as a value investor whose favorite holding period is forever, in recent years Warren Buffett has been known to value quality companies over an appealing purchase price. In Superinvestors of Graham and Doddville he writes how those with the correct temperament and training have proven to have outperformed market indices over time. Of course, we are probably asking too much for any investor to always outperform. Buffett’s acumen seemed to have disappeared over the last couple of years and in the late nineties when markets grew more speculative. His long-term track record speaks for itself and it is hard to find anyone who comes close to this when looking back over multiple market cycles, however.

Buffett invests in what he understands, owning companies with strong competitive advantages and strong management teams. In his early years, he sought to find companies selling at great prices, often lower than break up value. His second in command Charlie Munger has been instrumental in helping him focus on higher quality companies they want to own and waiting for prices to fall within their price range. Buffett seems to feel many companies, especially those who will benefit from ongoing inflation, are now within this attractive price range.

Buffett invests in what he understands, owning companies with strong competitive advantages and strong management teams. In his early years, he sought to find companies selling at great prices, often lower than break up value. His second in command Charlie Munger has been instrumental in helping him focus on higher quality companies they want to own and waiting for prices to fall within their price range. Buffett seems to feel many companies, especially those who will benefit from ongoing inflation, are now within this attractive price range.

Warren Buffett’s Patience

Patience remains an underappreciated investing attribute. But it is one of the reasons Buffett has been so successful.  Buffett refuses to invest if he cannot find what he feels are good values.  When speculative excesses of the late 1960s drove prices to a level where he felt he could no longer perform for his partners, Buffett shut down operations in 1969.  The markets entered into a long, drawn-out bear market than bottomed in 1974. Asked by Forbes how he felt about the stock market after prices had come down, Buffett Responded, “Like an oversexed guy in a harem.  Now is the time to start investing.”

Buffett may not feel as excited now as he did in 1974 as valuations are not near as attractive, but he seems to be making the rounds again.  Some might say he is the most excited he has been since late 2008 based upon his recent activity.  If Warren is getting excited, maybe we should be also.

“The stock market is a device for transferring money from the impatient to the patient” – Warren Buffett
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