What to do with Apple and Oil: Will the 2023 heroes of Mr Buffett’s dish deliver again?

As a quick reminder to anyone keen on a handy buck, Mnsr Warren Buffett is your textbook all-time successful investor. He’s the brains behind Berkshire Hathaway, one of the largest publicly traded holding companies in the universe, with a market cap of way more than US$600bn.

As of 2024, WB remains ensconced within the world’s top 10 richest.

We last saw Buffett bidding goodbye to his bud, longtime partner and near enough to centurion dammit, Charlie Munger, who passed just before Christmas. 

Now we find Warren and his shares of Berkshire Hathaway up about +16% for the year after climbing to an all-time high.

But the conglomerate that patience built still lagged the S&P500 by a long way last year.

As of Friday’s close, the Dow Jones Industrial Average ended about +13.7% ahead – a new record. The S&P500 index ended the year with a circa +24% gain at 4,769.83, while the tech-heavy Nasdaq Composite Index enjoyed a resurgence, rising 43% to end the year at 15,011.35.

The Nasdaq is about -7% off the record high it clocked in late October 2021.

All three major US indices rose for nine straight weeks to end the year.

Yet, the “Oracle of Omaha” has always opined regardless of the solidity of Berkshire’s earnings power and peerless balance sheet might, it still might not beat the market in any given year.

Especially last year’s final flurry, which pretty much outperformed Santa.

“I recommend the S&P 500 to people,” Buffett said at Berkshire’s annual meeting in 2020. “Berkshire is about as sound as any single investment can be in terms of earning reasonable returns over time. But I would not want to bet my life on whether we beat the S&P 500 over the next 10 years.”

Shares of the conglomerate reached a record high in September on the back of strong operating earnings as well as billions in returns from its Treasury holdings. Berkshire’s equity portfolio is also wrapping up a solid year with massive returns from Apple.

Apple’s stock broke its own record again in December to end the year on another high.

Apple had a minor bump mid-2023 when China’s officialdom snuffed out iPhone sales in a usually reliable market.

But enter some guile in the form of cost-slashings, big sales across Apple Music and iCloud, as well as some healthy optimism on the back of rate-cut chatter – Apple’s shares ended 2023 some +52% for the better.

Context: Now with a market cap of over US$3 trillion, Apple’s worth as much as the entire French stockmarket and more than the entire individual economies of Canada, Australia, and/or Brazil.

Just five US companies are valued above a single trillion: Microsoft, Alphabet, Amazon, and Nvidia.

Apple wasn’t exactly cheap when Tim Cook took charge back in 2011.

But since then, the stock’s risen 17-fold. The company’s investors must have read the Charlie Munger book of wisdom, then. Buffett’s late right-hand man advocated for buying outstanding companies at reasonable prices – not decent ones for cheap.

Case in point: Apple makes up more than half of Berkshire Hathaway’s portfolio, and the deposit has paid off handsomely.

One challenge to outpace the broader market consistently is the sheer amount of cash Berkshire is working with, making it very difficult for any investments to move the needle. The conglomerate’s cash pile ballooned to a record $157 billion at the end of the third quarter.

“If you work with small sums of money, I think there is some chance of a few people that really do bring something to the game,” Buffett said.

“But I think it’s very, very hard for anybody to identify them. …It’s certainly gotten tougher with for us with larger funds. And I would make no promise to anybody that we will do better than the S&P 500,” he said.

Still, Buffett’s long-term track record is unparalleled.

This last year he managed to top the list of biggest donations in 2023, doling out some 1.5 million shares of Berkshire Hathaway Class “B” stock valued at US$542 million.
 

The Buffett years

Berkshire, which cuts across 40 industries and 60 companies, has doubled the average annual return of the S&P 500 since Buffett first took control back in the LBJ years.

Berkshire’s compound annual gain was 19.8% from 1965 through 2022, compared with 9.9% for the S&P 500. That’s an overall total return of 3,787,464% vs 24,708% for the benchmark. Heaps of unwitting Berkshire shareholders became millionaires on the back of Buffett’s canny moves and clock-like patience.

The Buffett USPs

Another factor that makes Berkshire unique is the alignment between the top boss and its shareholders. Berkshire’s shareholders tend to be long-term investors just like Buffett, using their stock as a savings account.

“But what I will promise them is that I’ve got 99% of my money in Berkshire, and most members of my family are — may not be quite that extreme, but they’re close to it,” Buffett said. “I do care about what happens to Berkshire over the long period about as much as anybody could care about it.”

With oil prices down more than 15% over the past three months, it might seem strange that Buffett’s doubling down on Occidental Petroleum.
 

No Occident: Buffett buys big

 

Via

Buffett’s bet on Occidental isn’t about just one company. It’s a bet on stable energy markets and US security. It’s exactly the kind of wager he loves to make.

The shares aren’t having a great year – they’re down 4% since Jan. 1. But that wouldn’t necessarily be a deterrent for Buffett, since he often says that drops in stock prices should be seen as an opportunity to buy. The Berkshire stake has now grown to almost 28% of the company.

Buffett also says he likes to bet on the US, and his Occidental wager can be seen as one. The company agreed to buy privately held CrownRock recently for $12 billion for extensive shale acreage in the Permian Basin in West Texas and southeastern New Mexico.

The revival of the onshore US oil industry has been a huge energy story. The world’s biggest economy is now also its biggest crude producer at around 13 million barrels a day.

The rise of shale oil helps stabilise the world market. If Islamist rebels attack ships in the Red Sea, or the Organization of the Petroleum Exporting Countries decides to restrict output, US producers can step up.

To be sure, even though OPEC’s grip on the global market has weakened somewhat – Angola leaving the bloc is the latest illustration – it’s still strong. Oil prices can fluctuate a lot within only small changes in supply and demand. With discipline, OPEC will have little trouble putting a floor under prices next year.

But OPEC is also contending against other factors, too. Energy demand may weaken with the global economy, and the economy itself doesn’t require nearly as much oil as it used to for growth.

 

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