Hordes of investors flew into Omaha, Nebraska this past weekend, as opposed to their more regular practice of flying over it. The reason, of course, was to attend the annual Berkshire Hathaway shareholders meeting, or what is often referred to as “Woodstock for capitalists.”
Part of the experience for attendees is to get an update from the 93-year-old Berkshire founder and CEO Warren Buffett on his holding company’s overall performance and outlook for its component businesses, both publicly traded and privately held ones.
On that score, Buffett informed his shareholders that first-quarter operating earnings came in at $11.2 billion, versus $8.07 billion for the same period a year earlier. The so-called “Oracle of Omaha” also revealed that the firm’s cash stockpile rose to $189 billion at the end of the first quarter, a new all-time record. Buffett added that “it’s a fair assumption” that its cash hoard will hit $200 billion at end of this quarter.
All that cash is not burning a hole in his pocket, however. Buffett told attendees that he would “love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money.” Instead of going on a shopping spree for other companies, Berkshire bought back about $2.6 billion of its own shares in the first quarter.
Berkshire’s decision to sell some shares of its Apple holdings was the other big news from this portion of the day’s proceedings. The company reported a $135.4 billion stake at the end of March, down from $174.3 billion at the end of the year.
Elsewhere in the portfolio, earnings at Berkshire’s insurance businesses rose $2.6 billion, versus $911 million in the same period last year, primarily thanks to superior results at Geico. And it’s railroad unit BNSF reported an 8.3 percent decline in earnings from the prior period as a result of “unfavorable changes in business mix.”
Shares of Warren Buffett’s Berkshire Hathaway have returned 11 percent year-to-date, compared with a 9 percent rise for the S&P 500. Over the past 5 years, Buffett’s holding company is up 92 percent compared with the S&P 500’s 79 percent return. Go back even further, and Buffett’s baby really blows away the benchmark index.
WEIGHING THE ORACLE’S ADVICE
Once the Berkshire corporate housekeeping is completed, Buffett spends the rest of the day answering questions from the crowd about his views on the market, economy and a host of other topics. Sadly, he had to do it somewhat solo this year due to the passing of Charlie Munger, Berkshire’s vice chairman and Buffett’s long-time investing partner, who died at 99 in late November.
Still, he soldiered on, offering his wit and wisdom to the attendees and various media sources covering the event.
Yet while Buffett continues to captivate his own crowd after all these years, his words seem to reverberate less on Wall Street than they once did. No longer do fund managers or financial advisors hang on his every word or freeze and listen like they did in those old EF Hutton commercials.
“I'd say we follow his actions more than his words,” said Eric Amzalag, owner of Peak Financial Planning.
Amzalag says he generally does not factor what Warren Buffett has to say into his investing framework, despite owning Berkshire shares in client portfolios. And as to which market voice Amzalag listens to most regularly when it comes to portfolio management strategy, he points to Lance Roberts from Real Investment Advisors.
“Lance combines fundamentals and technicals in his approach to client money management,” said Amzalag. “I have found his perspective to be an excellent resource that provides calmness and clarity to me and my clients.”
For David Demming, founder of Demming Financial, Buffett’s appeal is more about his value philosophy than his cult of personality. Demming has been a strong proponent of value investing for more than forty years and utilizes value funds, notably First Eagle Funds, as cornerstones of his client portfolios.
“Classic value is our mantra but even Buffett has shown flexibility in example buying Apple,” said Demming. “The message is to be selective, flexible and patient rather than ideologically pure.”
As a “modern” value investor, Christopher Davis, partner at Hudson Value Partners, says Warren Buffett continues to loom large over his work, no matter how long he’s been at it.
“We follow Berkshire's 13Fs with interest, but it is the method he has refined over 70 years, and the lens with which he views businesses that has helped to shape Hudson Value Partners,” said Davis. “As a boutique firm, we enjoy a lot more flexibility as an investor than the $860b+ conglomerate and can draw just as much inspiration from the early days of the Buffett Partnership and Berkshire as we do the evolved focus on excellent businesses at fair prices.”
Matthew Liebman, CEO of Amplius Wealth Advisors, says he has been greatly influenced by Warren Buffett over the years including the power of investment discipline and maintaining a long-term focus.
His favorite Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”
Speaking of Wall Street aphorisms, Ted Brooks, partner at Nordwand Capital, says he’s always been fond of Charlie Munger’s “buying wonderful businesses at fair prices” saying.
“I am a value investor at heart and very much agree with the idea of buying companies for the long-term based on the underlying execution, management, and business positioning of that company, rather than seeing myself as a short-term stock trader/investor,” said Brooks. “In that way, I suppose I owe much of my outlook to the extended Ben Graham value tree.”
Outside the Oracle of Omaha, Brooks also follows hedge fund titan Stan Druckenmiller.
“He’s prescient and has had a succinct way of making lucid and logical points about markets and macro that appeals to me,” said Brooks.
Finally, while he loves a great Warren Buffett investing quote, Nathan Hoyt, chief investment officer at Regent Peak Wealth Advisors, says Buffett's portfolio maneuvers should have no bearing on how he or any advisor manage their client assets.
“Buffett’s ability to communicate investment ideas into short and relatable sound bites is second to none, but no investor should behave in a way to build or protect wealth based on what any billionaire is doing or saying,” said Hoyt. “If your goal is to grow wealth, following the Oracle of Omaha into a large cash position might feel brilliant, but it doesn’t align with the goal.”
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