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Berkshire Hathaway: Buffett The Buyer Is Back

Gary Gambino profile picture
Gary Gambino


  • Berkshire Hathaway spent $51.1 billion on new stock investments in 1Q 2022. This does not look like a market timing move.
  • More income from float is needed when inflation is impacting underwriting performance.
  • Increased investment income will help the company's earnings power now and will still be there after T-bill rates come down.

Berkshire Hathaway Holds Annual Shareholders Meeting

Scott Olson/Getty Images News

Big Buys To Improve Earnings Power, Not Time The Market

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) released 1Q 2022 results on April 30, just before the start of the annual meeting. The meeting

This article was written by

Gary Gambino profile picture
I am a Chemical Engineer by training and have an MBA with concentrations in Finance and Operations Management. I retired early after 22 years in the energy industry with roles in engineering, planning, and financial analysis. I have managed my own portfolio since 1998 and have met my goal to match the S+P 500 return over the long term with lower volatility and higher income yield. I plan to focus my writing on positions I already hold or am considering changing, however my bias is toward long-term holding unless there is a very compelling reason to sell.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BRK.B, ATVI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (30)

“Auto insurance is basically a commodity product that is only differentiated by the cleverness of the mascot / spokesperson in the TV ads. Customers will gravitate to the lowest-cost option as long as there are minimal switching costs.”

While this is true, the fundamental argument for insurance is that they make up losses by raising costs across all of their customer bases and have the authority of the FEDERAL GOVERNMENT behind them. Car insurance is mandatory by law and you must have it or go to jail. Most people have a 30 year mortgage and BY LAW you must have home insurance if you have a mortgage.

These companies dont have customers, they have prisoners, there is no free market in effect. A hurricane hits, they take a loss for a quarter or two and regain losses after the price hikes. A fire in California raises home insurance costs in Florida. Im 32 never been in an accident my entire life and even with all my discounts my car insurance keeps going up and up. Im paying for everyone elses accidents.

Yes there is churn between insurance companies but someone shops around to leave Geico, and someone shops to leave their old company for Geico. The true value in insurance is they dont have clients, they have cash cows. Mooooooooooo!
Mountain Marmot profile picture
Anyone else, besides myself, adding to BRK positions now that it is well into Buffett's buy back zone???
Disc; long ~22% portfolio brk.b
Feral Investor profile picture
Much of the oil industry (for now) seems intent to transfer its cash flow to investors rather than increase production to grab more of the oil price bonanza. Perhaps the political/investment climate makes this stoic abstinence the obvious choice. In any event, Buffett, who's always circling above watching for companies to catch his religion, sees at least two from the industry that, to him (and for now), appears to satisfy the requirement from his 1993 shareholder letter:

The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself

(You can review the other four requirements from that letter and ponder if Oxy and Chevron pass muster.)

Shades of Apple perhaps when Tim Cook began talking dividends and buybacks. Oxy, in particular, in that now-famous earnings call, spoke of dividends, buybacks, debt draw-downs, and steady but minimal and internally-set production growth. That last item maybe was the kicker: no gambler's mentality (for now), no boom-bust blues, meaning Oxy's other promises to shareholders have much more credibility.

On Buffett's "strategy," it's always decidedly fuzzy, like a painter reworking his canvas, which is how he described himself during this year's shareholder Q&A. (Interestingly, he did not choose the analogy of a father raising his child, the more accurate metaphor as we shall see in the years ahead as power shifts within the company.) But the constant is his solidifies in his mind a reliable estimate of a cash return that seems to him sufficient given other opportunities at the time. More and more he's realistic (some might say resigned) about what can add significantly to BRK's massive size. I think this helps explain the irony of his relief at having entered two capital-intensive industries (utilities and rail) in a big way and who knows what he'll do with this third significant stake.
dlevine007 profile picture
I’m wondering if Buffett went on a buying spree because while he believes in energy right now, he might have firmer beliefs that inflation will erode the value of cash. So he lowered his cash position by making some large relatively conservative bets. I’m hoping Berkshire B goes below 300 so I can buy some more.
simplevalue274 profile picture
@dlevine007 I don't thk we will ever know. I think he purposely obfuscates his comments and gives very little detail. It makes people think everything he does is pure genius. It's like when you are dating a girl, you let their mind run wild with all the things he may be thinking or do an in reality not much is happening. Who knows. Over the long term they operate well so I am at peace with it.
@dlevine007 What you are saying makes terrific sense especially with his large position in Chevron which seems like an inflation call. I wonder why Buffett old Exxon many years ago ?
@Proxima he sold Exxon because oil prices dropped and he said that it was likely to earn a below average return going forward. He was right to sell Exxon when he did, maybe he should have never bought it but munger said it was bought as a cash substitute because treasury rates were so low. Same reason why be originally bought Chevron and same reason why he bought Verizon. I think this second larger buy of chevron is an oil price and inflation play.
Thank you Gary for your terrific article bringing us up to speed on the cheerful Yoda's current stratagems. Well Done :)
congrats, informative, terrific piece that could be mistaken for a jim sloan article...that's a huge compliment!
Today, higher than average numbers of BRK A and B shares were selling at prices below where Buffett bought shares in March according to the Q1 10K. I hope this was Buffett buying back shares - aggressively - at the same prices which he found attractive just a few weeks ago.
@Instrinsicvalueguy 10Q … not 10K. LOL
Does anyone know if BRK still owns SNOW?
simplevalue274 profile picture
@Bogie 1 will find out on may 15th when 13f comes out. I suspect he does.
@simplevalue274 thank you
simplevalue274 profile picture
His activison bet seems odd. If deal falls through we own 10bn of a the company. Is that better than owning 10bn of Brk here? Seems questionable. I just don’t think we get the full thinking behind all his moves. We get yoda like responses which leads to lots of analysis not his words. I’ve just decided overall they will do ok so I just ride it out and am at peace w it. We may never know the full truth behind some of his decisions.

I am a big investor in Berkshire, however, I bet you the investment in Activision was to "save face" on the insider information allegations.

Reputation is big for Warren.

Better to fall on the sword and risk $3-4B (in the short term) than for the public to lay doubt to Berkshire's reputation and/or the reputation of the trader initiating the initial position in Activsion. (It makes the public question Berkshire's internal controls.)

If Berkshire initially invested without knowledge of the acquisition then it is safe to assume that he is comfortable investing additional sums after the acquisition is known.

I found it odd as well.
simplevalue274 profile picture
@Land Man21 That makes sense as well. Buffett really takes the mystery method to an extreme. He says very little and it makes people always think something genius is happening.

He has been in an out of oil stocks before without much reason. Now he is big into chevron because he said " the world changed" yet then in the next breath he says he doesn't buy anything based on short term economic or stock mkt moves. We have no idea how this war will play out. To load up on oil now when arguably sentiment for energy is at its highest its been in over a decade seems odd. He could be right but it's certainly not a fearful time to buy energy.

I would say growth and tech is out of favor now so would make sense to look there. Or why not add more brk? He sensitivity to the brk price is strange yet he adds $600mm of appl here? So he will buy more appl at 25x p/e but if brk creeps up to 1.5x bv he is out but at say 1.43 he is back in? I sure wish we bought back more at prices 5 years ago at prices he thought were not good back then vs ibm or any number of things he bought 5 yrs ago. In 10 yrs whether we buy back at 1.3,1.4 or 1.5+ it will make no difference. We will look back it it will look like splitting hairs.
@simplevalue274 He stopped buying back shares because he was using the money to buy other stuff, not because of the price of Berkshire. I don't think he will buy back much until the cash gets back up to around the float liability again and that is going to take awhile if it happens at all.
Jim Sloan profile picture
Hi Gary, Exceptional article. I think you have it just right about Warren's motives. Otherwise it's hard to make the case for more CX over more OXY. I sometimes miss this side of Berkshire because I have no use for dividends an see the risks of overvaluation and just plain business risks before I think about dividends. His tax situation in side Berkshire tilts the scale a bit. I really enjoyed what you wrote here and am sure I will revisit it a few times.
@Jim Sloan I think CVX allows him to put more money to work than OXY due to it's size. He can't buy all that much more of OXY without triggering some different accounting treatment and I'm not sure that he wants to trigger equity method accounting for OXY.
Gary Kime profile picture
Gary, another great update. Thanks for your good work!
Always interesting when Buffett and Munger speak. Both men have been involved in the market for decades and have seen it all.

"I've never been able to predict accurately. I don't make money predicting accurately. We just tend to get into good businesses and stay there"
- Charlie Munger
John McCoy profile picture
Excellent article, thank you. He also added to Apple and bought back more BRK shares in the quarter.
r Negoro profile picture
He is a bit late.
Gary Gambino profile picture
@r Negoro better late than never
@r Negoro A lot of people said the same thing when he bought KO and AAPL. I think those turned out OK.
@r Negoro Yeah definitely don't want to buy oil companies when the price of oil goes negative as it did in 2020, much better to wait until the price of oil goes from $60 to $120 and then buy...? So, he's thinking that oil prices are headed to $180?
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