Old Dogs, Old Tricks
Over the weekend, legendary investors Warren Buffet & Charlie Munger hosted the Berkshire Hathway earnings. Many companies have reported inline or below expectations for Q1 as supply chain bottlenecks, rising costs, and global instability persist. The Berkshire meeting is an anticipated event by investors due to Buffet & Munger’s historical performance. “Barron’s calculates that Berkshire shares would have returned 10.3% annually since 1965 assuming a class A price of $4,968, or 1% of the stock’s closing level of $496,800 on Wednesday.” (Barron’s) I kept up with any releases from the meeting over the weekend and have since put together an overview of the report that is hopefully digestible for the average reader. I tip my hat to the Buffet Boys as they continue to stand by their beliefs, even during the continuously changing market we’ve had the past two years.
Berkshire Hathway’s revenue for Q1 was down 2.1% YOY and missed estimated by 5.6%. Earnings per share were down 51.5% YOY but 23.4% better than expectations. The stock provided a return of 20.8% over the past year, outpacing the S&P’s -0.3%. Their large stock portfolio lost nearly 1.6$ billion in the first 3 months. During the meeting, Buffet informed attendees that they’d been purchasing shares of ATVI. As noted throughout the energy rally early on in the year, the company has also raised its holdings in both Chevron and Occidental Petroleum. Berkshire’s spending throughout Q1 decreased its cash holdings from $147 billion to $106 billion. Buffet is famously known for his quote “be fearful when others are greedy and be greedy when others are fearful” which has since been translated to BTFD. Among these buying frenzies, the company also spent $3.2 billion in stock buybacks and took an 11.4% stake in HP.
Aside from reporting their asset allocation and performances, both Buffet and Munger shared their opinions on crypto and the current market. Buffet exclaimed that the stock market has become a gambling parlor and he isn’t wrong. The rise of retail trading and investing has brought forth a new wave of money-hungry individuals that are chasing capital gains in a different way than the two famously “chased” theirs. “They don’t make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing” Buffet said, referring to the brokerages raking in fees on sky-high options volume that has taken place in the past two years as the impatient (myself included) try to hit big. He compared American companies to poker chips and stated that brokerages are making a fortune (they are) off trading commissions with the average trader placing 400 trades a day to make $5 (not a real fact). Munger chimed in, stating “It’s almost a mania of speculation…We have people who know nothing about stocks being advised by stockbrokers who know even less…It’s an incredible, crazy situation. I don’t think any wise country would want this outcome. Why would you want your country’s stock to trade on a casino?” They’re both right and this will be my only time throwing an opinion in an article but the rise of wall st bets, discord alert services, fintok, and fintwit paper trade accounts have offered hope to the unknowing investors looking to “trade for a living”. I’ve experienced this with family and friends asking me “how do I make money in the market” and when I say buy a company or index and hold they state they need the money now. Impatience seems to be one of the main characteristics onset by the covid rally as those who missed it or weren’t around for it want similar profit margins to those who were lucky (or smart) enough to buy near the bottom but the market is shifting and traders are staying quiet. While I can preach for a select few traders who know what they’re doing, most on the internet don’t know and I can assure you that a $50 a month subscription isn’t going to change your life…for the better at least. Get rich quick schemes tend to burn out quickly but the long game is what Buffet and Munger believe in and have the track record to prove their strength in any market. Munger criticized the Robinhood app and its unraveling justice. He’s stated before that “it’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors. … It’s a dirty way of making money.” (CNBC)
The Q&A session of the meeting was filled with mostly criticism, with Buffet preaching his skepticism on bitcoin. “Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said. “It’s got a magic to it and people have attached magics to lots of things.” His stance has remained the same since the cryptocurrency’s rise in popularity. Warren followed the criticism up by explaining the dollar is the only currency worth anything and to an extent it is true. The crypto community fulfills the next statement he made which was focused on the tribalism developing in the market. Munger backed Warren’s view after a question about bitcoin was asked, he said “When you have your own retirement account, and your friendly adviser suggests you put all the money into bitcoin, just say no.” Funny enough Fidelity recently announced that they would offer bitcoin in retirement accounts for its employees which quickly sparked criticism. I’ll wrap it up here as the rest of the meeting is about inflation and stuff that is in every headline and news channel at the moment. Berkshire assures that if the economy stops that Berkshire will be able to operate.
Buy companies that will continue to be around in the long term, buy when others are fearful, and be assured that “The Federal Reserve has not gone,” Buffett said. He added the Fed will “do whatever is necessary. … That’s what happened in 2008 and 2009, and that’s what happened in 2020, and you’ll hope it happens again next time.” For the actual letter, you can find it here! Thanks for reading.