The Oracle of Omaha’s stringent discipline in avoiding overpriced securities looks to have paid off in a big way. The sage old investor’s molding of Berkshire Hathaway (NYSE:BRK.B) into a “financial fortress” is set to pay dividends as the markets plummet. Buffett’s strategy was always a simple one, spot a bargain and invest heavily. The lack of applicable bargains is what has led to Berkshire stockpiling cash to levels similar to the time building up to the Great Recession of 2008.
Reported by CCN, the last time cash made up this much of Berkshire’s portfolio was in 2007. Buffett saw the Great Recession as a buying opportunity, investing heavily in American stalwarts like General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) with amazing returns. It was an implementation of his most famed rule of investing: “Be fearful when others are greedy, and be greedy when others are fearful”. With the levels of dry powder Berkshire now holds, will we see a similar phoenix-like rise from the ashes that saw the financial conglomerate’s stock rise three-fold in the decade after the crash?
Berkshire’s recent performance
Berkshire and Buffett have come under the microscope over the last few years as the performance of the stock has largely stagnated. Since the start of 2018 up until the market sell-off began — a time of meteoric growth for mega-cap companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT) — Berkshire’s value only increased by 5%. This, coupled with the disaster that was the Kraft Heinz (NASDAQ:KHC) merger, had many people pondering whether the old man was past it. The dreaded moniker of dinosaur was even bandied around.
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His portfolio is also severely affected by the current sell-off, with one of his most recent investments, Occidental Petroleum (NYSE:OXY), shedding more than half of its value in the past month. His stakes in airlines like Delta (NYSE:DAL), SouthWest (NYSE:LUV), American (NASDAQ:AAL), and United (NASDAQ:UAL), which make up about 4% of his portfolio, have also led to a $3 billion loss.
Berkshire’s exposure to banks, oil, and airlines is significant and will see the conglomerate hit hard over the next few months, but what he and his trusty sidekick Charlie Munger have successfully done is avoid overpriced, overhyped equities which have all come crashing back down to earth. In a foreboding interview last month, Munger highlighted “the wretched excess” and “bullsh*t earnings” which have taken over Wall Street as an indicator of things to come. I’m sure he wasn’t expecting his warnings to come to fruition as quickly as they did, but they exposed the cavalier attitude that was prevalent on Wall Street.
What next for the Oracle of Omaha?
Berkshire is heavily invested in some of the industries hardest hit by the global pandemic, so Buffett’s moves may be a lot more restricted than 12 years ago. As he bailed out the banks in 2008, airlines and oil companies will look to him as their knight in shining armor. However, the scope at which $128 billion affords the world’s greatest investor in a market rife with bargains remains a mouth-watering thought. My own personal hot-take is that we’ll see Buffett build up a significant stake in Boeing (NYSE:BA) through this downturn.
Only time will tell if Buffett and Berkshire can repeat the heroics from the last time the market was hit this hard, but it would be a brave man to bet against them. I’ll leave you with the great man’s famous Op-Ed in the New York Times (NYSE:NYT) from 2008, it may inspire greed in fearful times.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Content Manager at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.