☀️☕️ Buffett on Berkshire: “eye-popping” days are over (probably?)

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📝 Focus

• Buffett on Berkshire: “eye-popping” days are over (probably?)

📊 In the Markets

• S&P records continue; Carvana profits; WBD suffers; Ninth up day for China (but not HK)

• Granolas Bar

📖 MoneyFitt Explains

• 🎓 Share Buybacks

💸 Personal Finance Corner

• Side Hustles Inspiration: One of These 15 Ideas May Be Perfect

📝 Focus

Buffett on Berkshire: “eye-popping” days are over (…probably?)

“All in all, we have no possibility of eye-popping performance” in the coming years from Berkshire Hathaway, CEO and legendary investor Warren Buffett wrote in his keenly anticipated 2023 annual shareholder letter, released on Saturday.

With few investment opportunities to move the needle in a meaningful way, Berkshire added $39bn in cash over the year, ending 2023 with a balance of $168bn. Assets of over $900bn have essentially made Berkshire a victim of its own massive success. Therefore, share buybacks🎓, at over $9bn last year, will continue. Buffett is too smart to try and “call” the market, but if (i.e. when) markets next crack and panic, Buffett and his well-drilled team will be there to deploy that humongous war chest… and the results could once again be eye-popping. [MFM: Buffed up Cash Balances for Buffett]

Since 1964, its shares are up 4.4 MILLION per cent, miles ahead of the benchmark S&P 500, which rose a decent 31 THOUSAND per cent over the same period. Some wise words follow about patience in investing and immature markets, but we start with Buffett’s fond remembrance of his friend, vice-chair and “part older brother, part loving father” Charlie Munger, who passed away in November last year, “just 33 days before his 100th birthday.” [MFM: RIP Charlie Munger of Berkshire Hathaway]

..... ▷ Charlie, in 1965, promptly advised me: “Warren, forget about ever buying another company like Berkshire. 

But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices.

In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practised at small scale.”

Charlie was the “architect” of the present Berkshire, and I acted as the “general contractor” to carry out the day-by-day construction of his vision… 

Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect.

..... ▷ It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.

We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. 

Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. 

At Berkshire we favor the rare enterprise that can deploy additional capital at high returns in the future. 

Owning only one of these companies — and simply sitting tight — can deliver wealth almost beyond measure. 

When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.

..... ▷ Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced. 

Indeed, markets can – and will – unpredictably seize up or even vanish as they did for four months in 1914 and for a few days in 2001. 

If you believe that American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis, and we have come a long way since smoke signals. Such instant panics won’t happen often – but they will happen.

Berkshire’s ability to immediately respond to market seizures with both huge sums and certainty of performance may offer us an occasional large-scale opportunity. 

Though the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than when I was in school. 

For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now resides in many homes and daily tempts the occupants.

Cover image credit: Cihcvlss via CC BY-SA 3.0 DEED

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📊 In the Markets

The S&P 500 and Dow Jones Industrial Average closed at record highs again on Friday, with weekly gains across all three major Wall Street benchmarks, fueled by the strength of artificial intelligence stocks. Nvidia, the AI leader, continued its ascent, briefly surpassing $2 trillion in market valuation. While Nvidia's gains on Friday were modest compared to its rocketship previous session, the market impact remained significant. 

However, other tech giants like Apple, Tesla, and Meta Platforms experienced slight declines, leaving the Nasdaq Composite slightly below its recent record. 

Investor focus on Big Tech, especially Nvidia, are, for the time being, overshadowing concerns about the pace of Federal Reserve interest rate cuts. 

Online used car sales platform Carvana surged 32% to $69 on Friday following the announcement of record profits in 2023. While facing challenges like declining auto sales and higher interest rates, Carvana underwent debt restructuring last year, deferring near-term cash interest payments with bondholders like Apollo Global Management. Once a pandemic stock darling, benefiting from the used car sales surge, Carvana's stock peaked at $360 per share in August 2021 before plummeting to under $5 by early 2023.

Warner Bros Discovery tumbled 9.9% due to a larger-than-expected quarterly loss attributed to the twin Hollywood strikes last year and a tough advertising climate. WBD, which owns HBO, streaming service Max, CNN and the Warner Bros studio, reported revenue down 7% to $10.3bn, slightly missing the $10.4bn expected by Wall Street’s Finest, and actually posted a much smaller net loss of $400mn than the $2.1bn loss the year before. 

European stocks closed at a record high despite a waning US tech rally. The Stoxx Europe 600 rose 0.4% on Friday, marking its fifth consecutive weekly gain. Germany’s Dax and France’s Cac 40 reached new peaks, with gains of 0.3% and 0.7%, respectively. London’s FTSE 100 advanced 0.3% but remained below its previous record set a year ago.

Asia-Pacific markets mostly rose Friday, with China stocks climbing for the ninth consecutive session as investors digested property prices data. Newly built housing prices in first-tier cities dropped 0.3% month-over-month in January, with year-over-year declines of 0.5%, steeper than the 0.1% year-over-year drop seen in December.

The CSI 300 index edged up a marginal 0.09% to 3,489.74, extending its winning streak to nine sessions, but Hong Kong’s Hang Seng index closed down.

Granolas Bar

Another painfully constructed acronym for stocks has emerged, this time in Europe and this time with more or less nothing in common other than relative size. 

The 11 "Granolas" are made up of pharma giants, a couple of luxury names and just one each from the consumer and tech spaces: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH and AstraZeneca. They’ve driven 50% of the Stoxx 600 index over the last year and at 25% of that index it’s close to the Magnificent Seven's 28% of the S&P 500. 

Over three years it’s actually done just as well its US peer group, though the individual performances have varied massively (e.g. Roche’s -23% vs Novo +270%) and it’s lagged over the last year. The only real thing the Granolas have in common with the tech-centric Mag7 is the risk of high concentration in the biggest companies due to the growing influence of passive, index-tracking funds.

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