22 November 2023
The final quarter of 2018 was not kind to Berkshire Hathaway. Of course, they weren’t alone, any organisation with any exposure to US markets whatsoever felt the brunt of the market pullback, but the numbers for Berkshire were eyewatering. But as Buffett himself said, “be fearful when others are greedy, and greedy when others are fearful.”
The final quarter of 2018 was not kind to Berkshire Hathaway. Of course, they weren’t alone, any organisation with any exposure to US markets whatsoever felt the brunt of the market pullback, but the numbers for Berkshire were eyewatering. But as Buffett himself said, “be fearful when others are greedy, and greedy when others are fearful.” Berkshire isn’t planning on having another quarter like that one, and have some big hopes for 2019, or as Buffett himself describes them, “elephant-sized”.
Losing US$25 billion of value in 90 days isn’t pleasant for anyone, and indeed would be catastrophic for most investors. Coupled with a confession that Berkshire likely overpaid for Kraft Heinz, as the foodstuffs company announced a US$15.4 billion write-down, as well as an impending SEC investigation, and you seemingly have a disaster of infinite proportions. Yet, in a testament to Buffett’s decades of experience, hard work, and accrued capital, this appears to be nothing more than a bump in the road. Better yet, it looks like it may be the ideal time for investors to take full advantage.
In this year’s iteration of his annual shareholder letter, Buffett counselled investors analysing Berkshire Hathaway to see the forest rather than the trees.
“Investors who evaluate Berkshire sometimes obsess on the details of our many and diverse businesses – our economic “trees,” so to speak. Analysis of that type can be mind-numbing, given that we own a vast array of specimens, ranging from twigs to redwoods. A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty… Fortunately, it’s not necessary to evaluate each tree individually to make a rough estimate of Berkshire’s intrinsic business value. That’s because our forest contains five “groves” of major importance, each of which can be appraised, with reasonable accuracy, in its entirety.”
– Warren Buffett, Letter to Shareholders 2018
So, while Berkshire Hathaway lost $17 billion value from its investment portfolio last year, it also ended the year with growth in its level of overall cash and book value. Buffett and Berkshire Hathaway have also traditionally had a strong US-centric focus when it came to investing, but there has been some evidence, based on his recent statements, that Berkshire may be looking to diversify more. Furthermore, Buffett’s disdain for the current US President Donald Trump’s economic policy has been more overtly displayed than regular Buffett observers would be used to.
“It is beyond arrogance for American individuals to boast that they have ‘done it alone’,” he opined, adding that the US should “rejoice” when other countries flourish, and that “Americans will be both more prosperous and safer if all nations thrive.” In relation to Berkshire’s future intentions, he was unambiguous – “At Berkshire, we hope to invest significant sums across borders”.
The manifestation of this can already be seen with Berkshire committing just under half a billion Canadian dollars to purchase a stake in Canadian energy giant Suncor. Berkshire is yet to make a significant new investment in China, but given that their last foray in 2008 has netted them a US$1.6 billion valuation on a $232 million investment in 2008, it’s safe to say it should be watched with a keen eye. Speaking of a keen eye, that Chinese investment that Buffett made way back in 2008? An electric car company that has been one of the five fastest growing in the EV space globally in the previous decade.
While the hit from Heinz and the last quarter of 2018 has made investors wary generally, these events have potentially made Berkshire Hathaway a more attractive investment rather than less. Berkshire has a king’s ransom of cash on hand to make further acquisitions, and it would take a brave person to bet against Buffett. After all, in the last 20 years, not many can claim they’ve bettered him.
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