The time for extreme consumer spending is over, and many businesses have warehouses full to the brim of excessive inventory, says investment guru Warren Buffett.
Speaking at the annual shareholder meeting of his Berkshire Hathaway group in Omaha, Nebraska, USA, Buffett explained he expects an economic slowdown that will slash the earnings of his businesses.
Despite the bulging warehouses, Buffett told the 40,000 shareholders at the meeting that the company was doing well, with around $130 billion in cash and Treasury bills on the balance sheet at the end of the year’s first three months.
This cash mountain is earning the conglomerate a significant return as interest rates rise.
Revenues from Berkshire Hathaway’s clutch of businesses have been heartening as well, with earnings up 12.6 per cent to just over $8 billion in the first quarter, even though the income from stocks and shares, including a large holding in Apple, has helped.
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Cashing In Equities
Nevertheless, straight after the stockholder meeting, Buffett dumped $13.3 billion of stocks and shares to add more cash to his balance sheet rather than volatile equities.
The US investment markets regard Buffett and Berkshire Hathaway as a bellwether of what is likely to happen. Buffett’s words and actions suggest he is cashing out of his riskier investments and battening the hatches for a rough time by securing his business with a multi-billion dollar war chest.
“The majority of our businesses will report lower earnings this year than last year,” Buffett said in Omaha, adding an “incredible period” for the US economy has come to an end over the past six months.
Now, he says, consumers can expect sales with big discounts to get rid of the extra inventory.
Buffett, 92, and business partner Charlie Munger, 99, took investors on a guided tour of several sections of Berkshire Hathaway.
“Get used to making less cash from your investments,” warned Munger.
Car insurance is one of Berkshire Hathaway’s big earners. Their brand – Geico – posted £700 million in earnings for the quarter and drove into the black for the first time following six quarters in a row of losses.
Who is Warren Buffett?
The Oracle of Omaha, as Buffett is known in the media, is one of the world’s wealthiest investors.
Currently sitting in sixth place on the world billionaire rich list, Buffett is said to be worth $113.6 billion despite losing $408 million this year.
Buffett has invested throughout his life. In 1956, he acquired Berkshire Hathaway, then a textile firm. He made Berkshire Hathaway a holding company for his other investments.
Buffett is noted as a value investor and an opponent of active management. He believes active management cannot outperform the market in the long term and that investors should plump for index funds rather than try their hand at share-picking.
He wrote to shareholders: “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients”
To prove his point, in 2007, Buffett bet against anyone who did not believe him that a low-cost standard tracker fund would do better than hedge funds charging high fees over the next 10 years. In 2017, the tracker fund outperformed every hedge fund that made the bet.
What does Warren Buffett own?
Warren Buffett owns 65 companies through his Berkshire Hathaway holding company.
The list changes often but currently includes stakes in Apple, Bank of America, American Express, Goldman Sachs (bankers), Wells Fargo, Coca-Cola, Visa and Mastercard. The stock portfolio is worth around $210 billion.
Other companies include Geico, Dairy Queen, Duracell, Heinz, Bank of New York and General Motors.
Despite his success as last century’s leading fund manager, Buffett admits to making many investment mistakes and rates his performance as ‘so-so’.
“Our extensive collection of businesses currently consists of a few enterprises that have truly extraordinary economics, many that enjoy very good economic characteristics, and a large group that are marginal. Unfortunately, along the way, other businesses in which I have invested have died, their products unwanted by the public,” he said.
“Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently
delivering a gusher of improved goods and services.”
Warren Buffett and giving money away
Buffett has expressed his intention to give most of his vast wealth to charity – citing that 83 per cent of his fortune would go to the charity foundation run by Bill Gates and his wife Melinda.
He offered the foundation 10 million Berkshire Hathaway shares valued at more than $30 billion in June 2006 – the largest known donation to charity at the time.
Buffett’s Letters from America
For investors who want to know more about Warren BUffett’s financial wisdom, his celebrated letters to shareholders are archived online.
- Warren Buffett’s Annual Letters to Shareholders – Berkshire Hathaway’s official website provides access to Warren Buffett’s archived letters to shareholders, offering valuable insights into his financial wisdom: Link
- Bloomberg – “Buffett’s Cash Pile Swells to $130 Billion as He Shuns Deals” – This Bloomberg article discusses Warren Buffett’s decision to accumulate cash instead of investing in volatile equities: Link
- CNBC – “Warren Buffett is selling stocks again, but it’s probably not a warning about the market” – This CNBC article provides insights into Buffett’s recent stock sales and his cautious approach in the current economic climate: Link
- Forbes – “Warren Buffett’s Investment Strategy: Value Investing” – This Forbes article delves into Warren Buffett’s investment philosophy, emphasizing value investing and long-term thinking: Link
- Investopedia – “How Does Warren Buffett Pick Stocks?” – This Investopedia article provides an overview of Warren Buffett’s stock-picking strategies, offering insights into his approach to successful investing: Link