Why Warren Buffett is amassing a lot of money

18 August 2024Sunday, 9:00 p.m.

Author: Flagman.bg

No investor commands attention quite like Warren Buffett. As head of Berkshire Hathaway, the investment company he has led for nearly six decades, Buffett’s every move is closely watched. When he does make a move, investors big and small are considering what it could mean for their portfolios, he said. capital.bg.

The results released by Berkshire Hathaway on August 3 gave followers more reason to pay attention than usual. The company announced that it has cut its stake in Apple almost in half to $84 billion. US short-term money and finance rose from $189 billion in the first quarter of the year to $277 billion at the end of June. The news came against a strange backdrop. The stock market sold off sharply after weaker-than-expected US unemployment data raised concerns about the health of the world’s largest economy.

Buffett’s fame has taken on an almost mythical element: he is called the “Oracle of Omaha” for a reason. The tens of thousands of investors who come to Berkshire Hathaway’s shareholder meeting are more fans than stock traders. It is not surprising, then, that some observers see collecting money as a gloomy omen. They note that Buffett also amassed money in the mid-2000s, before the global financial crisis, putting him in a strong position to buy when other investors’ balance sheets burned to ashes. What does he know about economics that they don’t?

Less than they think. Buffett’s extraordinary talent as an investor is not based on his ability to see the future. In fact, his dominance is all the more impressive because of his lack of supernatural abilities. In research published in 2018, Andrea Frazzini, David Kabiller and Lasse Pedersen, all of the investment company AQR Capital Management, found that Buffett’s better long-term performance can be easily explained. He buys high quality stocks at very low prices and uses judicious leverage. His strategy, in short, is classic “value investing,” albeit in a form that comes with being able to borrow cheaply through Berkshire Hathaway’s insurance business.

Just as the explanation for his special performance is vision rather than magic, so is the purpose of collecting money. In May, Buffett said that his investors should expect him to sell stocks and build reserves for two reasons. One is that he expects capital gains taxes to rise and wants to realize his gains before that happens. The other is that he sees very few cheap, quality companies to invest in. The stock market is expensive everywhere.

Berkshire Hathaway’s investments in Japan demonstrate both the benefits and limitations of Buffett’s strategy. It is unlikely that the company sold its holdings in five sogo shosha, cheaply valued conglomerates, during the recent period of market turmoil. In February, Buffett mentioned the investments among those he intends to hold “forever.” At the same time, he has promised that his stakes in the companies will not exceed 10%, a number to which his investments are already. As a result, opportunities for expansion at home or abroad remain scarce.

Buffett never claimed to have the perspective his followers give him. In fact, he once joked that every company that hires an economist has one more employee, and says that he has never made an investment decision based on an economic forecast. Although Berkshire Hathaway emerged from the global financial crisis in better shape than most of its competitors, the company’s cash assets as a proportion of its total assets declined in the quarters leading up to the bankruptcy of Lehman Brothers in 2008 – no it’s just the strategy. which would give the experienced investor

Buffett’s new cash register is undeniably huge. Berkshire Hathaway could, if he wanted, buy McDonald’s at the price of the burger chain’s shares and be left with $80 billion, or participate in Meta more than Mark Zuckerberg, the leader the company. If markets decline more quickly, Buffett will be in an enviable position, able to catch companies trading at discounts. Fans of Buffett’s simple approach to investing should take his word for it. His simple promotions underpin his long and impressive record as an investor; there is no hidden explanation for the growing currency. Buffett’s value investing habits are getting tougher. Without further sales, it will likely stay that way.

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