Berkshire’s investment activity during the final three months of 2020 was all over the place, reflecting the chaotic and uncertain moment the world finds itself in — and that was before the GameStop phenomenon and meme-stock antics took hold of markets in recent weeks. Buffett’s investment vehicle exited more bank stocks including JPMorgan Chase & Co., boosted stakes in some pharmaceutical giants but ditched Pfizer Inc., trimmed its Apple Inc. position and bought new holdings in Verizon Communications Inc. and Chevron Corp. It’s a reversal from the more sanguine sentiment Berkshire exhibited in the third quarter, when it returned to being a net buyer of stocks and was seemingly bullish on everything from drugmakers and Japanese trading houses, to 5G wireless technology and the prospects for the year’s hottest tech IPO: Snowflake Inc. At the time my column headline even declared, “Warren Buffett Likes Stocks Again.”
While we don’t know exactly what Buffett’s mindset is now — Tuesday’s filing doesn’t cover January or February — that should be made clearer next week, when the billionaire is set to release his annual letter to Berkshire shareholders. We can, however, glean a few things from the breadcrumbs he’s left in recent months.
For starters, Berkshire appears to be sticking with companies that have clear-cut businesses (as long as they aren’t banks). It now reports shares of both T-Mobile US Inc. and Verizon, which are entirely focused on their 5G wireless networks. Perhaps notably, AT&T Inc. was left out of that bet, as it continues to wade through the challenges of integrating its Time Warner acquisition and tries to make financial sense of its subsequent foray into streaming-video apps with HBO Max. Buffett’s buying mantra has always been to stick with simple businesses that he understands. It was even his defense of Berkshire’s surprise purchase of Amazon.com Inc. shares in 2019, an investment made not by Buffet, but one of his deputies. “They are looking for things that they feel they understand,” he said at the company’s annual meeting that year, referring to money managers Todd Combs and Ted Weschler.
At first it seemed like the pandemic created the conditions conducive to a quintessential Buffett market, given that the world’s ninth-richest man is a bargain shopper looking for unloved assets with rebound potential. Instead, the same sky-high valuations he’s griped about the last few years held true in some industries, while others may have taken a permanent hit as a result of the crisis. The GameStop trading shenanigans of late also show how far away the market has moved from the 90-year-old Buffett, who at one time earned the nickname the Oracle of Omaha. Berkshire’s own non-dividend-paying stock has risen 8.6% over the past 12 months, trailing the S&P 500’s 18% total return. Berkshire trails the index on a five- and 10-year basis as well.
Berkshire’s top-performing stock picks of the past 12 months are emblematic of the fascinating evolution of its portfolio in recent years. BYD Co., a Chinese manufacturer of electric vehicles, posted a fivefold increase, followed by Silicon Valley cloud-software company Snowflake, which more than doubled after its September trading debut.
Then there’s RH, formerly known as Restoration Hardware. It was a bet that had some of us scratching our heads at first, but later proved to have epic timing. In a stroke of luck, Berkshire bought RH just ahead of a pandemic that would drive well-off Americans to buy and furnish second homes in an escape from claustrophobic city life. Berkshire’s RH stake may be relatively small — valued at just $844 million — but that’s about $600 million more than when it first bought the stock.
Buffett will share more insights next week, but what is clear is that so far during the crisis, he’s done little to chip away at his company’s $146 billion cash stockpile. A dealmaker once celebrated for his prescient use of capital is starting to earn a new legacy as a penny-pincher — or maybe the lesson is that those two go hand in hand.