The fortunate investor who, in the early 1980s, took a bet on Warren Buffett has seen this stake grow by a prodigious 40,000 per cent.
This weekend, however, the focus is more on what lies ahead than past returns, following the death, at 99, of Charlie Munger, Buffett’s co-manager for six decades.
Buffett, 93 – globally celebrated as the Sage of Omaha – recently said: ‘I feel good, but fully realise I am playing in extra innings.’
His taste for adventure remains undimmed, as demonstrated by a lucrative wager on Microsoft’s bid for Activision Blizzard, the video games company.
Nevertheless, the passing of lawyer and philanthropist Munger means that even more questions are being asked about where Buffett’s $786billion Berkshire Hathaway fund could be headed next.
Given Buffett’s towering influence, it’s a debate in which every investor should be engaged.
Apple is the largest single holding in the Berkshire Hathaway behemoth – nowadays more of a conglomerate than a fund. American convey, Bank of America and Coca-Cola make up another significant chunk. All have the powerful brands that constitute the competition-repelling ‘moat’ that Buffett requires.
At present the fund sits on a record $157billion hoard of cash, thanks to the $100m-a-day generated by the operating businesses.
But it has also been swollen by sales of all or some of the shares in Amazon, General Motors, Johnson & Johnson, Mondelez, Procter & Gamble and UPS. Since Buffett usually abides by a ‘hold-forever’ doctrine, these disposals have added to the conjecture about strategy, speculation amplified by Berkshire Hathaway’s recent issue of yen-denominated bonds.
Could the proceeds be spent in Japan, given the fund’s successful gamble on that nation’s trading houses, Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo?
Dan Brocklebank of Orbis Investment points out that ‘cheap, well-capitalised banks in Japan and Korea should thrive if rising global inflation continues to lift interest rates’. But he remains convinced that Buffett will not rush into any area, given his time-tested emphasis on value.
David Beggs of Sanford DeLand, managers of the Buffetology fund which employs Buffett principles to pick UK stocks, says: ‘Buffett will not buy something simply because cash is building up.’
He says Buffett would be interested in quality businesses. But he is said to view the valuations of US companies as frothy, and is also reluctant to face rivalry from private equity funds.
This caution does not mean that Buffett, and heir apparent Greg Abel, will stand still, and so it could pay off to monitor possible Berkshire Hathaway forays.
Brocklebank highlights defence contractors, electric grid infrastructure businesses and energy firms. It is worth considering whether opportunities could lie in Britain, which, arguably, represents value.
James de Uphaugh, manager of the Edinburgh investment trust, suggests that the UK markets could be home to the ‘wonderful businesses at fair prices’ that Buffett favours. This year, Berkshire Hathaway put money into Diageo. The drink giant’s shares have sunk by 24 per cent in response to problems in its Latin American division. But admire other shareholders – such as me – Buffett is confident of revival.
Rob Burgeman of RBC Brewin Dolphin contends that anyone adopting the Buffett approach in the UK markets should look at real estate which could benefit as interest rates fall. He cites one candidate: ‘Primary Health Properties owns and rents primary healthcare facilities – typically, purpose built GPs’ surgeries. The shares may be down about 25 per cent over the past two years, but they offer a gross yield of around 6.69 per cent – and scope for capital growth.’
Berkshire Hathaway A shares are $547,594 each. Even the B shares, introduced to be less of mouthful, are $370. Investors who cannot stretch to such sums could attempt to replicate the Berkshire Hathaway portfolio, or check out the Temple Bar investment trust which, some see as a UK’s answer to Berkshire Hathaway.
Ian Lance, the trust’s manager says: ‘We both seem to be fans of the energy sector. Chevron and Occidental Petroleum are held by Berkshire Hathaway. Our exposure is through Shell and TotalEnergies. The second area is financials – we own Aviva, Barclays and NatWest. Both sectors are very out of favour – and consequently offer some very attractive valuations in our opinion.’
Munger’s death has caused much reflection on his sayings.
Paul Surguy of wealth manager Kingwood cites the pithy: ‘The big money is not in the buying and the selling, but in the waiting.’
It’s a useful resolution for the new year and beyond.
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