After two years, Buffett’s shareholders’ meeting finally returned offline.
On April 30, 2022, the 2022 annual general meeting of shareholders of Berkshire Hathaway (hereinafter referred to as Berkshire), known as the “investor Spring Festival Gala”, was held in Omaha, the United States. Buffett and Munger appeared together again and answered dozens of questions from investors.
At the shareholders’ meeting, Buffett disclosed Berkshire’s investment actions in the first quarter of this year. In the first quarter, Berkshire bought more than $51 billion in stocks during the stock market decline, including Chevron, HP and Western oil companies.
It is worth noting that as early as 2019, Berkshire invested US $10 billion to help Western oil acquire Anadarko oil company, but chose to clear the warehouse in 2020. This time, Buffett bet again on the oil industry two years later. At present, Berkshire’s position in the oil industry has exceeded $43 billion.
Why does Buffett favor the oil industry again when clean energy has become a long-term global trend? Can the “God of stocks” continue the investment legend when entering the market at the time of the sharp decline of US stocks?
“big money” scavenging oil stocks
Buffett, who holds a lot of cash, revealed Berkshire’s investment operation in the first quarter of this year at the shareholders’ meeting, that is, to buy quickly.
Heavy oil stocks are one of the most concerned investment actions this year. Buffett said that in the first two weeks of March this year, Berkshire bought about 14% of Western oil circulating shares, with a total value of about $7.2 billion.
According to the first quarter of 2022 (Q1) financial report data released by Berkshire on April 30, as of the first quarter of March 31 this year, Berkshire’s investment in chevron reached US $25.9 billion, equivalent to holding about 159 million shares, a significant increase from its position of about 38 million shares and US $4.5 billion at the end of the fourth quarter of last year.
In the Q1 financial report, Berkshire disclosed that its equity securities investment also includes $10 billion worth of sustainable preferred shares of Western oil companies, plus its investment in Western oil and Chevron in the first quarter. By the end of the first quarter of this year, Berkshire’s position in the oil industry had accumulated more than $43 billion.
In addition, as one of the “four giants” that promoted the value of Berkshire last year, the insurance industry has won Buffett’s overweight again this year (Note: the other three giants are apple, Berkshire BNSF railway and bhe energy).
In March, Berkshire bought insurance company Alleghany for $11.6 billion, Buffett’s largest acquisition in six years. In this year’s open letter to shareholders, Buffett said that the insurance business is tailor-made for Berkshire and believes that (insurance) products will never be out of date, and the revenue will usually increase with economic growth and inflation.
In addition, Berkshire’s investment actions in the first quarter of this year also included the purchase of 121 million HP shares, accounting for about 11.4% of the latter; Buffett also revealed that Berkshire has held a 9.5% stake in Activision Blizzard, which does not rule out a position of more than 10%. According to the documents disclosed by the SEC in February, Berkshire held 14.66 million shares of Activision Blizzard by the end of 2021, accounting for about 2% of the latter.
In Q1 financial report, Berkshire’s stock investment is mainly divided into three categories: banking, insurance and finance, consumer products, and commercial and other industries. As of the first quarter, about 66% of Berkshire’s total fair value was concentrated in four companies, namely apple, Bank of America, American Express and Chevron.
According to the data released by Berkshire at the end of the fourth quarter of last year, the company’s top 10 positions are apple, Bank of America, American Express, Coca Cola, Moody’s, Verizon communications, United Bank of America, Byd Company Limited(002594) , Chevron and Bank of New York Mellon. Buffett has become the fourth largest position in the western oil industry.
western oil famous Deputy cash cow
In fact, Buffett’s layout of the oil industry can be traced back to three years ago. In 2019, Buffett agreed to provide us $10 billion to help Western oil acquire Anadarko oil company. Buffett has said that this is a long-term bet on rising oil prices.
However, after the covid-19 outbreak in 2020, Buffett cleared the warehouse of Western oil. In 2020, Western oil once fell to US $8.483/share, the lowest level since 2000. At the shareholders’ meeting that year, Buffett regretted the investment, called it a “mistake”, and said he planned to invest more money in wind energy and Cecep Solar Energy Co.Ltd(000591) investment.
Why did Buffett significantly increase his holdings of Western oil again two years later? At the shareholders’ meeting, when talking about the huge investment in Western oil, Buffett said that the annual report of Western oil companies was very good, so he decided to invest in it. He revealed that in the first two weeks of March, he bought 14% of the circulating shares of Western oil, worth more than $7 billion. Originally, only 60% of the shares of Western oil companies could be circulated.
Buffett also said that since late February, the short-term fluctuations caused by the “gambling mentality” in the market have enabled him to find good long-term opportunities. Munger also said that he finally found an investment worth more than US Treasury bonds.
The reporter noted that since the beginning of this year, affected by the rise of international oil prices and the extraordinary promotion of bafi, the share prices of Western oil have risen sharply in a row. As of the closing of US stocks on April 29, the company has increased by more than 90% this year.
According to Forbes analysis, this investment is almost certainly linked to commodity prices (oil prices). As in 2019, Buffett’s investment in Western oil is still a long-term bet on oil prices. From Berkshire’s behavior of increasing its position in chevron in the third and fourth quarters of 2021, it can be inferred that Buffett has more and more confidence in oil prices.
At the same time, Buffett’s heavy position in oil stocks happened to be from the end of February to mid March. It was also during the tense situation between Russia and Ukraine. Russia cut off part of its energy supply to Europe, and global energy prices soared. The interruption of Russian energy may boost the value of U.S. energy production. Unlike other multinational oil companies, the main oil and gas production of Western oil happens to be in the United States and China.
In addition, according to Goldman Sachs, due to the high correlation between Western oil business and oil price, the company’s free cash flow sensitivity is very high. The daily economic news reporter checked the report of the Q4 financial report meeting of western Petroleum in 2021 and found that for every $1 / barrel rise in oil price, the company’s annual cash flow rose by $225 million. If Goldman Sachs’ optimistic expectation of oil price is accurate, the free cash flow yield of Western oil in 2022 may reach 37%. Buffett happens to favor companies that generate huge free cash flow.
According to Forbes, based on the utility and pipeline business of Berkshire energy (bhe), Buffett may also be considering the possibility of integrating western oil into Berkshire’s wholly-owned company.
others fear that I am greedy. Can “stock god” continue to write a legend
With the escalation of the situation in Russia and Ukraine and the increase of interest rates by the Federal Reserve, US stocks have experienced a lot of selling since this year. In contrast, Buffett bought more than $51 billion in stocks in the first quarter of this year.
This is reminiscent of the 1970s, when the United States was mired in stagflation and in a period of economic recession. Many investors were hit hard by the global stock disaster, but Buffett still delivered brilliant results.
In the 1970s, although facing the dilemma of stagflation, the speculative sentiment in the stock market was particularly high. At that time, the 50 highly sought after large cap stocks traded on the New York Stock Exchange were called “beautiful 50” because of stable profit growth and high P / E ratio. It is reported that in 1972, driven by institutions, the P / E ratio of “Meimei 50” reached a high level. Polaroid’s P / E ratio reached 90 times, McDonald’s 85 times and Disney 82 times, while the average p / E ratio of S & P 500 in the same period was 33 times.
The first oil crisis broke out in 1973, which led to the bursting of the “beautiful 50” foam. In the same year, the dollar depreciated further, the Bretton Woods system collapsed, and the market was besieged. However, according to the data of Caitong Securities Co.Ltd(601108) Research Institute, during the two oil crises in 1973 and 1977, the S & P 500 index recorded a decline, while Buffett had a perfect bear market performance.
According to the statistics of the Institute, from 1970 to 1976, Buffett achieved a total return of 240.3%, 188.9 percentage points higher than the yield of the S & P 500, and the annualized return reached 19.1%, 13 percentage points higher than the yield of the S & P 500; From 1977 to 1981, Buffett once again outperformed the market, achieving a total return of 247.9% and an annualized return of 28.3%, 203.7 and 20.7 percentage points higher than the S & P 500 market respectively.
According to the analysis of the above research institute, the reason why Buffett was able to win in the 1970s lies in accurate timing. In terms of prosperity, Buffett’s purchase of raw materials reached a high level, and Kaisa’s profit reached 600% in the 1970s; In the early 1980s, US interest rates soared, and Buffett allocated insurance and Finance on a large scale.
In addition, Buffett’s bottom reading action is also one of the important decisions to achieve his legendary investment life. In 1969, when the recession loomed and the market was overvalued, Buffett retired temporarily. After the two oil crises in 1973 and 1977, Buffett copied the bottom of the Washington Post and the government employee insurance company respectively, and finally gained a lot.
Buffett’s keen sense of investment makes Berkshire’s investment action this year seem to have a reason, and whether the “stock god” can win the market again will be the focus of many investors.
