Warren Buffett’s Berkshire Hathaway swung from extreme caution to a flurry of deals in 6 months. We asked the experts to analyze its shifting strategy.

Warren Buffett, hunched over a microphone on a stage overlooking a dark, cavernous, and virtually empty hall, cut a forlorn figure at Berkshire Hathaway’s annual meeting in May.

Tens of thousands of Berkshire shareholders usually descend on the billionaire investor and Berkshire CEO’s hometown of Omaha to attend the gathering, one of the most significant events on the investing calendar. They mingle with other investors, peruse the wares of Berkshire-owned businesses such as See’s Candies and Nebraska Furniture Mart, and participate in activities including a foot race and a steak dinner.

Buffett wanders around the room, taking selfies with fans and cracking jokes to the crowd of reporters and groupies in his wake. The highlight of the weekend is when he and his business partner, Charlie Munger, field questions from shareholders and hold forth on a wide range of topics.

This year’s meeting was almost unrecognizable. The pandemic ruled out a mass gathering and forced Buffett to address his shareholders remotely via a Yahoo Finance livestream.

Munger, at the ripe age of 96, didn’t risk flying in from California. Apart from a skeleton crew of production and venue staff, Buffett only had one of his deputies, Greg Abel, and a glass of Coke for company.

Buffett underscored the devastating impact of the pandemic in his speech that day. He described it as a “flip of the switch” in the American psyche and compared the US economy’s shutdown to pulling a train off its tracks and laying it on the side of the rails.

The investor tried to soften his dire message by emphasizing the country would ultimately prevail. “Never bet against America,” he said.

Buffett’s cautious tone, coupled with the revelation that Berkshire added $9 billion to its $128 billion cash hoard in the first quarter instead of snapping up bargains when pandemic fears tanked markets, sparked a fierce backlash from several commentators.

After all, Buffett famously plowed billions into Goldman Sachs and General Electric at the height of the 2008 financial crisis, as well as Bank of America in 2011.

“We have not done anything because we don’t see anything that attractive to do,” the investor said in May about the dearth of deals. He highlighted the Federal Reserve’s swift interventions to shore up markets as one reason for the lack of opportunities.

Berkshire eventually responded by making multiple bets in the third quarter.

Navigating a crisis

At the annual meeting, Buffett signaled that his focus was on weathering the pandemic, not profiting from it.

“I would never take real chances with other people’s money under any circumstances,” he said.

The investor’s cautious approach underlined the immense responsibility he feels to his shareholders and his awareness of how public perception of Berkshire can affect its business.

“Buffett is managing not only an investment portfolio but a sprawling conglomerate at the heart of which is a vast array of insurance operations,” Darren Pollock, portfolio manager at Cheviot Value Management, told Business Insider.

A strong balance sheet and spare cash help its insurers appeal to customers, Pollock continued.

“Berkshire’s strong finances are a strategic advantage and Buffett’s desire to hold extra cash at the expense of perhaps achieving a little more in investment gains is perfectly rational,” Pollock added.

Selling stock and conserving cash

Buffett remained conservative with his spending in the second quarter. Berkshire sold $12.8 billion worth of stock on a net basis, as it dumped the airlines and took a knife to financial holdings such as Wells Fargo, JPMorgan, and Goldman Sachs.

However, the conglomerate loosened the purse strings in the third quarter, announcing more than $19 billion worth of investments.

It struck a $10 billion deal to buy most of Dominion Energy’s natural-gas assets in early July and plowed $2.1 billion into Bank of America stock over 12 consecutive trading days to August 4. It disclosed 5% stakes in the five biggest Japanese trading houses a few weeks later – a roughly $6 billion outlay over the preceding 12 months.

Buffett’s company also bought $735 million of Snowflake stock when the cloud-data platform went public in September and agreed to hand Scripps $600 million in return for preferred stock and a warrant to buy $300 million worth of the broadcaster’s common stock at a fixed price in the future.

Those are minor bets relative to Berkshire’s robust cash generation and its $147 billion cash pile at the end of June.

Buffett won’t be too stressed about stockpiling cash, as bargains are rare at the moment and there will be a better time to buy.

Barrick and Snowflake

Two of Berkshire’s bets this year, Barrick Gold and Snowflake, warrant special attention because they’re so unusual.

After all, Buffett famously prefers productive assets such as businesses to gold, and has avoided lossmaking, aggressively valued technology stocks and IPOs for most of his career.

Berkshire likely backed Barrick Gold because of its stellar management, shrinking debts and operating costs, and the prospect of rising gold prices boosting its profit margins, Pollock said.

“Paying a reasonable price for these improving metrics is pure value investing, in this case executed by either Ted Weschler or Todd Combs,” Pollock added, referring to Buffett’s two portfolio managers.

Meanwhile, Berkshire has more than doubled its money on its Snowflake bet already, but Pollock says it’s too soon to assess whether it’s a sensible long-term investment.

In any case, the Barrick and Snowflake wagers show Buffett and his team aren’t afraid to break from tradition and experiment with new types of investments.

Bookmark the permalink.