Warren Buffett’s Berkshire Hathaway had a rollercoaster ride of a year in 2020.
The famous investor’s company owns scores of businesses including Geico, See’s Candies, and the BNSF railway, as well as billion-dollar stakes in Apple, Bank of America, Coca-Cola, Kraft Heinz, and other public companies.
As a result, Berkshire was hit hard when the COVID-19 pandemic spurred authorities to impose lockdowns, shutter non-essential businesses, and roll out travel restrictions last spring.
Buffett initially took cover, selling Berkshire’s stakes in the “big four” US airlines and slashing its positions in JPMorgan, Wells Fargo and other financial stocks in the second quarter of last year. The approach surprised many commentators who had expected the investor to deploy a chunk of Berkshire’s roughly $130 billion cash pile when markets tanked.
However, the Treasury and Federal Reserve moved quickly to pump liquidity into the economy and shore up asset prices, giving Buffett little time to find bargains, or strike the kinds of lucrative deals he made during the financial crisis.
Buffett and his team sprung back into action in the third quarter, when they were confident the pandemic didn’t pose an existential threat to Berkshire. They announced more than $35 billion of investments in the period, including $18 billion in stock purchases, a record $9 billion in share buybacks, and $10 billion worth of deals.
Berkshire will reveal how its operations fared in the fourth quarter, as well as which stocks it bought and sold, later this month. We asked an expert to share what he’s hoping and expecting to see from Buffett, his business partner Charlie Munger, and the rest of the team this year.
Darren Pollock, portfolio manager at Cheviot Value Management:
“We would not be averse to Buffett and his team reducing Berkshire’s stake in Apple. The shares ended the year at more than 30 times next year’s earnings, a valuation that is more than 2.5 times higher than its average during the prior decade.
Apple is a great business, just very highly priced at this time. We know Buffett regretted not selling at least a portion of Berkshire’s giant stake in Coca-Cola in 1998, and today the Apple position is much larger.
We’d like to see large, continued share buybacks as long as Berkshire stock remains attractively priced. We think Berkshire can easily buy $20 billion worth of its own shares annually and still add to its cash balance each year. Moreover, large buybacks should not hinder its ability to make acquisitions. This is a company in such strong financial condition that it can have its cake and eat it, too.
As Charlie Munger likes to say, to be a great investor one needs a combination of great patience and then great gumption to act aggressively when opportunities arise. Over time, Berkshire management has consistently shown both – though more patience than gumption in recent years. We hope to see more gumption, although only when the opportunity makes sense.”