Why is Berkshire buying now?

Why is Berkshire doing something now that it failed to do in 2008-2009: buying equities? I looked at the cash flow statements for 2008 and 2009 and they had a net deployment of cash (equities purchased less equities sold) of $2 billion. I know that it felt like the world was coming to an end in 2009, but Fort Knox should be buying when others are terrified. Berkshire did purchase $21 billion of preferred and debt that contained some equity kickers, but those additions were not necessarily designed to last for a long time - not like common stocks.

Clearly, I don’t know, but I wonder if Berkshire is determined to not make that mistake again and is buying early this time. Or, are the people at Berkshire much smarter than me (which, of course, they are) and see current prices on some select securities worthy of purchase today.

As I write this the Dow is down 1,160 points and I see red on almost every stock I list on my financial page. This market knows no mercy. Target had a miss and was written down 25% today. This is not some new tech company selling for 20 times 2025 sales, but a well-established, formidable company. Thus is the mood of the market.

I am not suggesting that Berkshire or anyone try to time the market. But as I had stated before, one can value the market, and the people at Berkshire should be better at that than almost anyone else. Valuing the market means to look at the current environment. We still have a richly valued market even with war, inflation, a slowing economy, supply chain disruptions and crypto currencies selling at more than 0.00 per share.

I was not asked, nor do I know, but I still believe that this market has plenty of room on the downside. So, why is Berkshire buying equities now with all that I listed above when in the dreadful throes of 2009 it shunned common stocks?

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More expensive to sit in cash these days compared to 2009, so maybe that’s one reason Berkshire is getting in a little “early”.

Also, WB and CM aren’t getting any younger, so maybe they feel like this is their last hurrah to put lots of money to work.

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Also, WB and CM aren’t getting any younger, so maybe they feel like this is their last hurrah to put lots of money to work.

Never! This would be 100% against their mentalities. Either they see non-emotional factual reasons for buying something - - - or not. Simple!

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I’m not saying they are buying just to buy something, but maybe the thought that time is running out spurred them on a little bit. :rofl:

But seriously, I’m glad they are having another chance to put a lot of cash to work. I was wondering if they would be able to.

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I’d say that 2008-09 had the potential for catastrophic disaster due to looming bank-runny cascades, whereas the challenges of today–China lockdown, supply chain snags, Ukraine, inflation–are serious but finite in nature.

So, my concern is less about BRK (finally) deploying cash but rather the way they’re deploying it, esp. by piling more and more into fossil fuel. The good buys, not that anyone’s asked me, are mostly in tech, particularly the high-quality names that won’t suffer greatly from the aforementioned challenges–e.g., GOOG, MSFT, ADBE, and any number of others. These companies don’t have complicated stories. The folks in Omaha can grok them readily. And you can put some serious money into these names without disrupting their prices greatly.

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So, why is Berkshire buying equities now with all that I listed above when in the dreadful throes of 2009 it shunned common stocks?

I remember 2009. It could have been, and in fact seemed to be an existential crisis. The was a complete lock-up in the financial system, not just the stock market. The best analogy I can offer is 1907, when JP Morgan was called upon to save the financial system during an especially severe panic - and didn’t have the capital to do it. What he did have is enough to get the other Capitalist unicorns involved, locked in a room, and come up with enough of an infusion (and plan) to forestall the run on the banks as was happening.

He knew that owning more assets (railroads, canals, steel mills, etc) would amount to nothing if the financial system collapsed around them, so he went all in on putting together the biggest *(and last) private bailout the system ever saw. The Fed was created in 1913 when it was belatedly realized that private capital could no longer do the job. Recall that the country had just emerged from what was then called The Great Depression following a panic in the 1870s, later renamed The Long Depression after the 1930’s fiasco assumed the title of “Great”.

In a similar (rhyming, not repeating) way Warren fielded many calls, only a few of which he could reasonably entertain - and recall the timing was just prior to a Presidential election which meant no one could or would do anything for several months, minimum. I do recall many billions of Berkshire monies flowing to others - on favorable terms to Berkshire but not, I would say, at the expense of the greater good, the economy.

It is conceivable to me, at least, that he was standing ready to continue the crusade should it prove necessary, and that meant keeping a very large cash pile, not buying cheap stocks or companies which might, in the end, prove worthless anyway.

I am not exaggerating about 2009; some of the largest financial houses in the country went upside down faster than you can say cryptocurrency, but today’s troubles seem minor by comparison to 2009. Some will say I’m being over dramatic or inventing history, and that’s OK with me, the idea of Warren standing guard in a time of desperate national trouble appeals to me, and it’s as good an explanation as any unless and until we hear otherwise from the actual participants in that drama.

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Buffett not buying in 2009 could be explained by complete lock-up and panic in the financial system. But it’s harder to explain not buying during a few months market crash around March 2020, worse, he sold airlines and Wells Fargo stocks near the very low point.

MisterFungi for the record I am politely disagreeing with every single word of your post about valuation.

Old dealrakers guess: the secular growth of energy will double that of technology for years to come.

I agree with MisterFungi:

I’d say that 2008-09 had the potential for catastrophic disaster due to looming bank-runny cascades, whereas the challenges of today–China lockdown, supply chain snags, Ukraine, inflation–are serious but finite in nature.

and in particular, inflation. Maybe a higher equity allocation is appropriate now rather than it being nearly free to sit in cash.

SA

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I’m quite active after 2 cups of coffee as is the norm. Here’s my thinking on what Buffett is doing.

While we think about the downturn, the thing progressively more are promoting and awfulizing, Buffett is investing for years down the road. Yes that includes CVX and OXY, not short term thinking going on there.

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I’d guess Buffett is buying because of inflation and interest rates.

He can see the cash getting absolutely destroyed before his eyes. Munger talked about Daily Journal buying equities as an alternative to cash. Settings aside the Alibaba drawdown, I take this to mean inflation is a big problem and holding cash is futile other than for liquidity purposes. That is quite a toxic position: to hate cash so much that you would rather own stocks that ‘might’ be considered expensive and looking around its seems clear they could certainly get cheaper and possibly by a lot. The best of the worst options argument everyone is dealing with.

(Munger’s preference was cheap China stocks over USD cash. Buffett’s choosing ‘expensive’ US stocks over USD cash.

Perhaps Buffett also thinks central banks can’t and won’t put interest rates to the level that would be required to tame inflation. They stay relatively low. This makes stocks more valuable. And Buffett buying makes sense. He knows they can get cheaper and probably will but he is not going to take a chance on something he can’t predict.

I also think the recent buys are not the kind of plan A high quality hold for ever compounders. These are still too expensive for Buffett. He has plenty of operating free cash flow to buy meaningful amounts of these should they go on sale.

The big recent buy is oil. In a world struggling with inflation, owning oil is a good hedge. Activision seems perfect trade in a falling equity market. My point, has he really gone all in on equities?

Now Buffett does seem early but of course he is trying to be rational. And that maybe means not trying to wait for even better prices.

How this applies to Berkshire shareholders. Well obviously it has worked great over the long pull having Buffett and Munger make the hard calls.

How it applies to us as individuals, it depends on personal circumstances.

Signed
Grateful idiot to be 90% Berkshire

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" I’d guess Buffett is buying because of inflation and interest rates."

I’d say that’s a good guess…

2022 A.M.

BECKY QUICK: Thanks, Warren. The first question comes from Jack Suselesky (PH). And he says, “In the annual letter that you wrote on February 26th, you mentioned that Charlie and you saw ‘little that excites us in the market.’ Yet around March 10th, the deal for Alleghany was announced, and then later the Occidental announcement, then the disclosure of the HP investment.”

His question is, “What changed from the time you dated the letter to the time the investments were announced that the names suddenly become interesting in the space of a month and a half, or half a month?”

WARREN BUFFETT: Well, Charlie, you want to give your version? I’ll give my version.

CHARLIE MUNGER: Well, my version would be we found some things we preferred owning to Treasury bills. (Laughter)

WARREN BUFFETT: And as usual, Charlie’s given the total answer, but I’ll talk longer and say less. (Laughter)

https://buffett.cnbc.com/video/2022/05/02/morning-session—…

Buffett and Munger go on to describe the recent casino like behavior in the market - trading pieces of businesses like they were “poker chips”. Buffett references Chapter 12 of Keynes’ “General Theory” as describing in “beautiful prose” what was happening in March of this year when Mark Millard was able to “hoover up” 14% (~25% of the readily available 60%) of outstanding OXY shares in just 14 days. I highly recommend reading Chapter 12 to help further understand what Buffett and Munger are thinking.

One thing that has changed more recently is inflation that has reared its ugly head after being dormant for over four decades. As you stated, its likely Charlie and Warren think inflation (and associated monetary debasement) is here to stay for a while - possibly a long while.

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Buffett also commented that the Fed stepped in during the March 2020 freeze before anyone could come to him to ask for cash like they did in 2008/2009. I suspect he thinks the Fed will continue to act fast. Also agree with inflation concerns and I think he suspects the Russian’s have shot themselves in the foot on exporting oil for a while.

The APPL buys at 25x earnings surprise me but AAPL can probably pass on inflation better than most too.

May you live in interesting times.

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“One thing that has changed more recently is inflation that has reared its ugly head after being dormant for over four decades. As you stated, its likely Charlie and Warren think inflation (and associated monetary debasement) is here to stay for a while - possibly a long while.”

Agree BHH and this was one of the biggest take-home messages from my visit to Omaha and the price we ALL must pay for all of the prolonged QE. Only Cash is cash and devaluation is inevitable. I am 65% BRK for times like these and know they will always be very thoughtful though not always right. My inclination has been to nibble on the way down on attractive rock solid Long term businesses, but mainly let WEB/BRK do the more complex risk analysis and decision making with all of this volatility and major correction. He has a helluva lot more skin in the game and is Always thinking 5-10 years away, as are most of us. Very pleased he is finding a lot of current solid opportunities while things are on sale and is PRO oil & energy going forwar beyond the clean energy focus at BHE. Seems like a very wise stance.

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  1. This is nothing like the 08-09 GFC where it was a real possibility that almost every bank and FI might fail. ‘Normal’ companies were at much greater risk of not being able to pay their debts thus Chp 11 [or 7!] and equity holders would be zeroed out.

  2. Inflation is way higher, as others have noted.

GOOG and FB certainly look ‘cheap’ to me, as do the energy stocks.

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