Trades executed by Warren Buffett’s Berkshire Hathaway indicate that the aging investor finds very little appealing about the current market conditions. The company disclosed a sale of stocks worth $13.3bn in the first quarter. Berkshire has also abstained from reinvesting this cash on the market. It reported little to zero purchases on the equities market, throughout the quarter.
It has spent $4.4bn towards the purchase of its own stocks. Another $2.9bn has been invested in the shares of a few publicly traded companies.
Warren Buffett and Charlie Munger are now facing the challenge of investing in the company’s $130bn cash pile. Neither experts are enthused by any of the company valuations and both of them are worried about market volatility. Berkshire Hathaway’s cash reserves have increased by $2bn since the beginning of the year.
The two legendary investors were speaking to an audience of thousands of Shareholders in Omaha. Gregory Abel and Ajit Jain joined the pair on stage as Vice Chairs of the annual meeting.
Munger cautioned investors about lower returns from the current volatile market. Buffett too advised caution as he remained sanguine about the state of the economy. He felt that the problems for the company were just beginning.
Buffett has led his company through steep interest rate hikes, bank collapses, and hostile markets in the last 58 years. He abstained from painting an absolutely gloomy picture of the economy. However, Buffett did feel that the company had not felt the full brunt of the economic crisis as of yet. He did say that he expected many of his businesses to lose money this year.
Pointing out a few positive signs, Buffett said “It isn’t that employment has fallen off a cliff or anything, but it is a different climate than it was six months ago. A number of our managers were surprised. Some had too much inventory on order.”
The higher interest rates have been working for Berkshire as the majority of their investment is in short-term treasury bills and bank deposits. The returns from these investments have increased from $164mn to $1.1bn.
Buffett refused to comment on Berkshire's stake in Activision, a gaming company. The company was acquired by Microsoft. Berkshire had bet heavily on the company at the time of the takeover.
Berkshire has increased its stake in Occidental Petroleum in the first quarter. Buffett clarified that he had no plans of taking over that company.
The complete shift in the portfolio will only be evident by the second quarter of this year. Many observers noted that Berkshire had sold its stake in Chevron, the oil giant.
Berkshire reported $35.5bn in profit for the first quarter this year. That’s $24,377 per class A share. The growth of Berkshire's $328bn portfolio was supported largely by a rally in stocks.
The profits were higher than last year by $5.6bn.
Gieco, auto insurance, Berkshire’s crown jewel, has started underwriting profits. The auto insurer witnessed six consecutive quarters of losses and had to take drastic measures recently. The performance of Buffett’s other key investments like Clayton Home and BNSF railroad was also troublesome. Pointing out to lowering sales and traffic respectively, Buffett spoke about his $151bn investment in Apple.
It just happens to be a better business than any we own,” he said. “Our railroad is a very good business but its not remotely as good as Apple’s business.”
