Genia Turanova
By Genia TuranovaMay 8, 2023

Warren Buffett is cooling on one of his favorite sectors

Warren Buffett

This weekend, investors from around the globe flocked to Omaha for one of the most anticipated events of the year…

Berkshire Hathaway’s annual meeting.

Every year since 1973, Warren Buffett has used the conference to share not just the status of his company… but his predictions for the market over the short and long term.

And he’s not called the Oracle of Omaha or “the world’s greatest investor” for nothing… 

Buffett has a unique window into the economy—thanks to his 58-year tenure at the helm of Berkshire Hathaway (the largest insurance company in the country)… and his massive investments across multiple industries. 

For proof of Buffett’s prowess, just look at his track record: Had you invested just $1,000 in Berkshire Hathaway back in 1980, you’d be sitting on more than $1.7 million today. 

And this century, Berkshire has delivered more than twice the market’s returns. 

Berkshire Hathaway stock price % change v. S&P 500 total return level % change 2000-5/8/2023 - Line chart

In short, getting a glimpse into Buffett’s mind can provide invaluable insight into where the market is headed… and how best to invest in this economy.

Today, I’ll share the three most important takeaways from this weekend’s meeting… and how they can help you navigate your own portfolio through this dangerous market.

1. A recession is coming

Buffett is clearly worried about leaner economic times ahead.

The proof is in the full-year outlook for Berkshire’s business…

Buffett expects most of Berkshire’s businesses to see revenue declines this year. Considering how widely diversified Berkshire Hathaway is—from insurance to energy to railroads—this indicates a widespread economic slowdown.

And if this direct warning isn’t strong enough, consider that Berkshire Hathaway has bought back $4.4 billion worth of its own stock in the most recent quarter (Q1). While this is up from just $2.6 billion last quarter, it’s a much slower pace than the $6–7 billion per quarter it was spending on buybacks in 2020 and 2021. 

This reduced buying tells us Buffett doesn’t view Berkshire’s shares as particularly cheap. And it suggests he expects the stock to get cheaper in the foreseeable future…

Keep in mind, in the 2021 shareholder letter, Buffett noted he plans to be careful when repurchasing his company’s own shares. “We don’t want to overpay for the shares of other companies, and it would be value-destroying if we were to overpay when we are buying Berkshire,” he wrote. 

And Berkshire’s cautious stance isn’t limited to its share buybacks…

During the latest quarter, Buffett sold $13.3 billion worth of various portfolio holdings—much more than he reinvested back into the market. The obvious reason: He expects the market to pull back.

Meanwhile, he’s setting aside plenty of cash. In fact, Berkshire’s cash position has grown from $109 billion in 2022 to $130.6 billion today. That’s a nearly 20% increase.

A growing cash position… More stock sales than new purchases… A warning about Berkshire Hathaway’s revenue growth… All of these factors amount to a clear recession call. 

The lesson: Buffett is clearly concerned about an economic slowdown ahead. Smart investors should heed this warning and start preparing for a recession. Check out this article to learn how you should be positioning your portfolio.

2. Stocks are expensive… but still a great long-term bet

Buffett is cautious about buying stocks ahead of a recession… as are we here at Curzio Research.

His smaller positions show that he believes stocks have become less attractive… and sees fewer good deals in the market. As Buffett quipped, “Things are generally expensive these days.”

But it’s important to note that he didn’t unload the bulk of the Berkshire portfolio either. 

Always the optimist, Buffett isn’t getting out of stocks entirely… and probably never will. 

He’s been accumulating equities since the 1950s… and it’s the stock market that made him one of the wealthiest people in the country.  

In short, he knows that stocks are the best game in town when it comes to long-term wealth creation.

Time is the most important ingredient… and the longer your time horizon, the better your chances of making it big in the market. 

In Buffett’s own words, “I’d love to be born today, start out with not too much money, and turn it into a lot of money.” 

The lesson: While the stock market looks dangerous in the near term… over the longer term, it’s still the best moneymaking mechanism ever created. It matters when you buy and how much you pay—but with stocks, time is always on your side.

3. Buffett is cooling on oil

Buffett is famous for running a concentrated portfolio… and for building large positions in the companies he likes. 

But he never does so blindly.

And he loves companies that dominate their corner of the market… 

One of the largest—and growing—positions in Berkshire Hathaway’s portfolio is Occidental Petroleum (OXY), a leading shale player and one of the largest companies in the Permian basin.

Last summer, Buffett even received the Federal Energy Regulatory Commission’s (FERC) permission to buy as much as half of the company. 

But, although Buffett added about $1 billion more to his already massive 23.6% stake in OXY this quarter… he said Berkshire Hathaway isn’t planning to take over the company.

Also of note, Berkshire sold about 20% of its stake in oil major Chevron (CVX). 

Apparently, Buffett isn’t as bullish on oil as he was just a few months ago. 

But this doesn’t mean that he’s quitting the energy sector altogether. 

For one thing, Buffett remains a major investor in fossil fuels (Occidental and Chevron). Plus, he’s got substantial exposure to alternative energy. Over the years, Berkshire Hathaway Energy (BHE) has invested $31.6 billion in wind, solar, and geothermal power generation—and billions more in transmission facilities connecting these alternative energy sites to consumer markets. 

The lesson: Buffett is avoiding an overly concentrated bet on fossil fuels. Instead, he’s hedging his bets in the energy sector… and diversifying his investments across both traditional and alternative energy. In short, he’s putting himself in a winning position regardless of which direction our nation’s energy policies turn. 

Conclusion

Buffett’s latest shareholder meeting offers a glimpse into his views on the market… and the best ways to position yourself to profit in the shorter and longer terms.

It’s clear the Oracle of Omaha is worried about the economy… concerned about valuations… and less enamored with the near-term outlook for oil companies. On the other hand, he still thinks that investing in the stock market is the best way to grow long-term wealth—especially if you stay diversified and remain selective about what you buy (and how much you pay).

Next week, we’ll look at a few of Buffett’s stock holdings to see how they mesh with his long-term investment philosophy… and whether they can help your own portfolio weather the coming downturn. 

Stay tuned.

Genia Turanova
Genia Turanova, CFA, has more than two decades of Wall Street experience, and has served as an editor and chief investment strategist for multiple investment advisories. In 2019, Genia brought her proven investment record to Curzio Research as the lead analyst and editor behind Moneyflow Trader and Unlimited Income.
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