Warren Buffett is among the most famous investors worldwide. He’s amassed a fortune valued at over $100bn — as of November 2022 — and his value investing strategy is analysed and copied around the world.
He’s led Berkshire Hathaway for over five decades, turning the holdings company into one of the world’s most valuable organisations. As such, many investors are very keen to see the company’s quarterly reports, looking for insight into what the ‘Oracle of Omaha’ is investing in, and what he’s avoiding.
A warning
In the Q4 results published in February, some investors realised that Buffett had increased the company’s position in cash, cash equivalents, and treasury securities.
That concerned many investors as Buffett sees himself as a net buyer of stocks. He invests in “great companies” when he believes the valuation is attractive. Buffett tends to hold stocks for a very long period of time, and only sells when these companies are trading in line with or above their fair valuation.
So, when Berkshire Hathaway’s cash, cash equivalents, and treasury securities grew from $105.4bn to $128.7bn, between 30 June 2022 and the end of the year, many investors thought a market correction might be coming.
And that’s what happened — although it might not have happened as some anticipated. Silicon Valley Bank collapsed when it had to sell bonds at a loss as tech sector depositors withdrew their capital. This sent shockwaves through markets and stocks tanked — it most cases it wasn’t warranted.
What about now?
We won’t know what Buffett has been investing in or avoiding until the Q1 data is release in the coming weeks. But what we do know is that Buffett entered the quarter with cash, cash equivalents, and treasury securities worth $128.7bn.
We also know that Buffett is a value investor, and it can be easier to find stocks with attractive valuations when prices go down. Buffett is known to look for a margin of safety above 30% — this means that the book or intrinsic value of the stock is considerably above the market valuation.
I could be wrong, but I’d expect Buffett is taking the opportunity to buy some of his favourite stocks at lower prices. The billionaire has previously noted that he’s actually happy when prices go down because he can buy more of the companies he believes in.
It’s worth noting that not all stocks have gone done in value. Some of his favourites, including Coca-Cola, Occidental, and Apple, have pushed upwards over the month.
But other existing holdings like Bank of America, have slumped. The banking giant is down 17% over a month and 27% over a year. Buffett may see this an opportunity to buy more of the stocks he believes in.
What does this mean for me? Well, Buffett doesn’t invest much in the UK and I don’t invest much in the US. But in following his investment strategy, I can look to invest more in some of my favourite stocks that have suffered over the last month.
Barclays is among those I’m topping up on. Discounted cash flow calculations suggest it could be undervalued by as much as 75% after its March slump.
