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Investors around the world have been trying to adjust their portfolios to cope with the big rate hikes from the Federal Reserve, the European Central Bank, the Bank of England and other central banks this year. But Warren Buffett needn’t worry.
It looks like the Oracle of Omaha has the last laugh this year. Shares of Buffett’s Berkshire Hathaway (BRKB) are up about 5.5% in 2022. The S&P 500 is down more than 15%.
Buffett has been helped by the fact that Berkshire has a large stake in oil company Chevron (CVX), which is the best stock in the Dow this year with a gain of almost 50%. Berkshire also owns a large portion of Occidental Petroleum (OXY), which has more than doubled…making it the biggest gainer in the S&P 500.
Oil inventories have soared on the back of rising crude oil prices.
Buffett’s affinity for dour consumer stocks also served him well in 2022. Berkshire has large holdings in Coca-Cola (KO) and Kraft Heinz (KHC), each of which is up about 10% this year.
Berkshire Hathaway, a huge conglomerate that owns businesses ranging from Geico and the Burlington Northern Santa Fe Railroad to consumer brands such as Dairy Queen, Fruit of the Loom and Duracell, has also held up relatively well during a tumultuous year for the economy and markets .
The company posted a net loss in the first three quarters of 2022 due to the decline in value of other top investments such as Apple (AAPL), Bank of America (BAC) and other financial stocks, but Berkshire Hathaway’s actual business units are doing just fine.
Berkshire Hathaway’s operating profit — the metric both Buffett and Wall Street analysts prefer to use as a measure of the company’s health — is up nearly 20% in the first nine months of the year to $24.1 billion.
Can Buffett and Berkshire do it again in 2023? More challenges lie ahead as oil prices fall and inflation spikes. That could hurt Berkshire’s own huge energy and utility companies. Higher interest rates could also continue to put a dent in Berkshire’s banking investments.
Investors will also look to Buffett’s lieutenants to get more public about how they plan to lead the company in an eventual post-Buffett world. Buffett will be 93 in August, while Berkshire vice chairman and longtime confidant of Buffett, Charlie Munger, will celebrate his 99th birthday on New Year’s Day.
So it’s reasonable to wonder how much longer Warren and Charlie’s show will last. Fortunately for Berkshire investors, there is a succession plan. Vice Chairman Greg Abel will eventually become Berkshire’s CEO, while Buffett’s investment gurus Ted Weschler and Todd Combs will manage the portfolio.
Berkshire has taken advantage of this year’s market turmoil to snag some bargains. Taiwan Semiconductor (TSM) is the most recent example. Berkshire also continued to buy back its own shares. But many corporate executives don’t seem too eager to buy into this year’s dip.
Only about 5,000 members of management teams have bought stock in their own company so far this year, according to research from VerityData. That’s less than about 6,500 insiders during the 2020 Covid bear market.
It is also well below the number of insiders who bought stock of their company during the Great Recession in 2008 and 2009, the 2011 debt ceiling debacle that led to the US credit cut and the pre-presidential election market jitters of 2016.
That can be a bad sign. If CEOs and other C-suite leaders aren’t so confident in a market recovery, should you be?
The lack of insider buying is even more telling when you consider that top CEOs such as JPMorgan Chase’s (JPM) Jamie Dimon and Goldman Sachs’ (GS) David Solomon have also been making cautious comments on the economy lately.
But Ben Silverman, director of research at VerityData, warns investors not to worry too much. That’s because insiders don’t sell many stocks either.
“There seems to be a reluctance on the part of insiders to call a market bottom,” Silverman said. “But insiders also don’t sell or convert stock-based compensation into cash. Many insiders do that regularly. They seem willing to hold on, but not put more skin into the game.
So CEOs and other corporate insiders may choose to err on the side of caution. They really don’t know where the market and the economy are going, just like the rest of us.
The stock market turmoil of 2022 is like a fleeting rainstorm compared to the raging storm underway in crypto circles.
While bitcoin prices have rebounded a bit lately after a gloomy November, there are still concerns about the health of other crypto giants, such as Coinbase, in the wake of the collapse of FTX and the arrest of founder Sam Bankman-Fried.
As my colleague Michelle Toh reports, there are now big withdrawal concerns from FTX rival Binance, who at one point considered buying/rescuing FTX before changing his mind.
CNN’s Matt Egan also notes that there is growing bipartisan support in Washington for sweeping regulatory changes in the crypto industry. Democratic Senator Elizabeth Warren has teamed up with Republican Senator Roger Marshall to introduce a bill to tackle money laundering in the crypto world.