Only a handful of investors have been as successful as Warren Buffet in when it comes to profitable investing.
The Oracle of Omaha is highly respected for his consistency, with many investors looking to imitate his stock picks and investment strategies. This explains why Berkshire's 13F filings is among the most closely watched. Investors hope to glean which stocks the legendary investor picked in the last 3 months.
After receiving backlash for shunning the market in 2020, and remaining on the sidelines for much of 2021, Buffett has been on a buying spree this year.
In this article we look at Buffett's stock picks for 2022 to give us an insight into his investment plans for the year. We will also take a cursory look at the lessons we can learn from Oracle's investment strategy.
Let's dive in!
Buffett has been adding significantly to his energy bets, taking advantage of both rising oil prices and crude's properties as an inflation hedge.
Chevron is now the fourth largest holding in Berkshire's portfolio with over $25bn, a big spike from $4.5 billion at the end of 2021. On the other hand, Berkshire owns 18.7% of Occidental Petroleum, worth $7.7bn.
Berkshire has also been shopping for financial stocks this year.
Berkshire acquired a 2.8% stake (55,155,797 shares) in CitiGroup, worth $3bn worth of shares of Wall Street bank in the first quarter of 2022. The conglomerate also splurged $390m on 8,969,420 shares of Ally Financial in the first quarter of 2022.
Buffett has shown that he is not afraid to buy shares of legacy companies, provided they are for the right price and have strong fundamentals.
This investment strategy was exemplified in his purchase of HP and GM shares. Buffett bought 120,952,818 shares of the personal computing and printing hardware, and about 2 million shares of the legacy auto maker. Buffett's stake in HP makes him the company's biggest investor.
You may not regard this as a 'Buffett stock', which people usually believe are slow and boring. But Berkshire more than quadrupled their stake in Activision Blizzard after Microsoft announced a proposed acquisition of the video game company.
Berkshire now owns 9.5% of Activision shares. Though Buffett has stated that this was an arbitrage play, as he hoped to gain on the price gap between the current market price and the price which Microsoft was willing to pay for the shares of the company.
Buffett has never been shy to buy and own quality value stocks when he sees them.
Buffett, through his holding company, purchased shares of what we call unknowns ie. stocks that are not usually in the public eye.
Berkshire acquired 5,603,705 shares of Formula One Group (FWON.K), 3,936,291 million shares of Floor & Décor (FND ), and 2,921,975 shares of McKesson (MCK).
A cursory look through Buffett's stocks picks this year provides an insight why he has remained consistent as a profitable investor.
Buffett clearly likes value companies with significant cash flows. Such companies tend to be resilient in economic downturns, offering investors a hedge during turbulent times.
Buffett demonstrates why having a contrarian philosophy is a good strategy for long term investment.
While many people were diving headlong into the bull market of 2020, Buffet remained on the sidelines.
However, following the bear market of 2022, he has been buying stocks at cheap valuations, while investors have been panicking and selling off. His stock pickings now position him for profit when the next leg of the bull market starts. This is another classic investment lesson from the Oracle of Omaha.
Many people believe that going long or short are the only investment positions.
However, Buffett has shown that sitting on the sidelines is as good as any investment position. When the market, wild with euphoria of easy money, investors engaged in a buying binge from March 2020 through to November 2021, Warren Buffett remained on the sidelines.
This is despite the fact that he had a cash pile of $146.7bn. He was ridiculed for his comments on Bitcoin which he saw as worthless, and nothing but a Ponzi scheme.
However, time seems to have vindicated his decisions. While people were paying high premiums for stocks only to be wiped out in 2022, Buffett has gotten these stocks cheap and is waiting for the next bull cycle.
As such, taking a step back from the market could be a very useful strategy for long term investing.
What this market has shown us is that fundamentals matter regardless of the market cycle. We are seeing this in the price action of high multiple stocks, which have risen on the prospects of their future earnings.
Shares of SPACs, disruptive companies, EVs or cannabis stocks, which held much promise but showed little in terms of income have cratered from their lofty heights.
Others such as Coinbase and Robinhood, which had blockbuster public listings and generated a lot of attention due to vibrant marketing, have also careened. The market has lost patience with these kinds of stocks, and chosen to stick with proven companies.
True to his words, Buffett has been greedy when others have been fearful and vice versa.
The legendary investor among other things has been accused of not understanding technology companies. The closest he has come is investing in Apple and Amazon, while shunning high flyers like Tesla, Facebook or Netflix.
Buffett has chosen to stick with his circle of competence i.e. buying shares of companies whose business model he understands, rather than chasing the next big thing.
Buffett's investment in Activision has shown why information is key to formulating investment strategies.
Following Microsoft's announcement to acquire Activision, Berkshire loaded on shares of the gaming company. Buffet hoped to arbitrage on the gap between the stock's price and Microsoft's bid to acquire it.
He saw a big disconnect between the current price of Activision shares and the $95 per share in cash Microsoft was planning to pay for the company.
Berkshire kept adding to its number 1 stock, Apple, despite the fed rate hike-induced tailwinds in the sector.
Berkshire's stake in Apple is now worth $159bn, making the conglomerate the largest single owner of Apple, while the stock makes up more than 45% of its portfolio.
Many people believe that there are now new opportunities in the stock market.
As such, they tend to limit their investments to popular stocks. However, research shows that only about 35% of the over 8000 stocks trading on US exchanges are covered by analysts. This means about 65% of stocks are not.
These unknowns present buying opportunities for investors willing to do their due diligence.
Buffett's investment in unknown stocks like Formula One Group (FWON.K), Markel (NYSE:MKL), Floor & Décor (NYSE:FND ) and McKesson (NYSE:MCK) reinforce the need to cast your searchlight far and wide when looking for quality stocks.
November 30, 2023
November 29, 2023
November 27, 2023