The lucky investor who gambled on Warren Buffett in the early 1980s has seen his stake grow by as much as 40,000 percent.
This weekend, however, the focus is more on what lies ahead than on past returns following the death, at age 99, of Charlie Munger, Buffett's co-manager for six decades.
Buffett, 93 – celebrated worldwide as the Sage of Omaha – recently said: “I feel good, but fully realize I'm playing in overtime.”
His taste for adventure remains as strong as ever, as evidenced by a lucrative bet on Microsoft's bid for Activision Blizzard, the video games company.
Still, the death of lawyer and philanthropist Munger means more questions are being asked about where Buffett's $786 billion Berkshire Hathaway fund might go.
Given Buffett's enormous influence, it's a debate that every investor should participate in.
Apple is the largest single holding company in the Berkshire Hathaway giant – more of a conglomerate than a fund these days. American Express, Bank of America and Coca-Cola make up another significant portion. They all have the powerful brands that form the anti-competitive “moat” that Buffett needs.
Currently, the fund has a record $157 billion in cash, thanks to the $100 million per day generated by its operations.
But it has also been swollen by the sale of all or part of the shares in Amazon, General Motors, Johnson & Johnson, Mondelez, Procter & Gamble and UPS. Since Buffett typically adheres to the hold-forever doctrine, these divestitures have added to suspicion about the strategy, speculation heightened by Berkshire Hathaway's recent issuance of yen-denominated bonds.
Could the proceeds be spent in Japan, given the fund's successful bet on that country's trading houses Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo?
Dan Brocklebank of Orbis Investment points out that “cheap, well-capitalized banks in Japan and Korea should flourish as rising global inflation continues to push interest rates higher.” But he remains confident that Buffett won't rush into any area, given his time-tested emphasis on value.
David Beggs of Sanford DeLand, managers of the Buffetology fund which uses the Buffett principles to select UK stocks, says: 'Buffett won't buy something simply because the money is piling up.'
He says Buffett would be interested in quality companies. But he is said to view US company valuations as frothy, and is also wary of rivalry from private equity funds.
This caution doesn't mean that Buffett, and heir apparent Greg Abel, will stand still, so it might be worth keeping an eye on potential forays into Berkshire Hathaway.
Brocklebank highlights defense contractors, power grid infrastructure companies and energy companies. It is worth considering whether there may be opportunities in Britain, which demonstrably represents value.
James de Uphaugh, manager of the Edinburgh Investment Trust, suggests that the UK markets could be home to the “great companies at fair prices” that Buffett favors. This year, Berkshire Hathaway put money into Diageo. The drinks giant's shares have fallen 24 percent in response to problems in its Latin American division. But like other shareholders – like me – Buffett is confident of an upturn.
RBC Brewin Dolphin's Rob Burgeman says anyone adopting the Buffett approach to UK markets should look at real estate, which could benefit if rates fall. He cites one candidate: “Primary Health Properties owns and leases primary care facilities – typically purpose-built GP practices. The shares may be down about 25 percent over the past two years, but they offer a gross return of about 6.69 percent – and room for capital growth.”
Berkshire Hathaway A shares cost $547,594 each. Even the B shares, introduced to be less mouthful, cost $370. Investors who can't afford such sums can try replicating Berkshire Hathaway's portfolio, or take a look at the Temple Bar Investment Trust, which some say is Britain's answer to Berkshire Hathaway.
Ian Lance, the trust's manager, said: 'We both seem to be fans of the energy sector. Chevron and Occidental Petroleum are owned by Berkshire Hathaway. Our exposure is through Shell and TotalEnergies. The second area is the financial sector: we own Aviva, Barclays and NatWest. Both sectors are very much out of favor – and therefore offer very attractive valuations in our opinion.'
Munger's death has led to much reflection on his statements.
Paul Surguy of asset manager Kingwood quotes the pithy: 'The big money is not in buying and selling, but in waiting.'
It's a helpful resolution for the new year and beyond.
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