Warren Buffett's Berkshire Hathaway has outperformed the market in the last 3 recessions – and its positioned to do so again in a 2023 downturn, UBS says
Warren Buffett’s Berkshire Hathaway will outperform the market in a potential downturn this year, UBS said.
The conglomerate run by the legendary investor has outperformed the S&P 500 in the past three recessions.
So far in 2023, the firm’s class B shares have underperformed the broader market.
Warren Buffett’s Berkshire Hathaway has outperformed the market in the past three recessions – and the stock is positioned to do so again if a downturn hits in 2023, according to UBS.
“During the past three recessions, BRK’s shares have outperformed the market and other financials owing to its diverse business mix, very strong balance sheet, and substantial liquidity. Given the uncertain economic outlook in 2023, we believe BRK’s stock can outperform,” analysts said in a note this week, pointing to the conglomerate’s strong performance in previous economic downturns.
Warren Buffett’s luck changed this year, allowing him to spend a record sum on stocks and end his deal drought. Here are his 6 highlights of 2022.
Warren Buffett spent a record sum on stocks and made a major acquisition in 2022.
The Berkshire Hathaway CEO tore into bitcoin, adjusted some overseas bets, and gave a surprise gift.
Here are the investing icon’s 6 highlights of 2022.
Warren Buffett’s luck changed in 2022. After years of battling to find bargains and watching Berkshire Hathaway‘s cash stack up, the famed investor seized his chance to put his conglomerate’s mountain of money to work.
Buffett spent a record sum on stocks, executed a major acquisition, and made some striking changes to his overseas bets. He also crowed about four of Berkshire’s key holdings in his yearly letter, trashed bitcoin at the annual shareholders’ meeting, and made a surprise donation to his children’s charities.
Here are Buffett’s 6 highlights from 2022:
The annual letter
Buffett published his famous annual letter to Berkshire shareholders in February.
The investor vented his frustration with Berkshire’s mammoth $144 billion cash pile, blaming a lack of bargains in the stock market. He also celebrated the “Four Giants” among Berkshire’s businesses: insurance, railroads, energy, and its enormous Apple stake.
Moreover, Buffett appeared to respond to criticism of his tax practices by noting Berkshire paid $3.3 billion of federal income tax in 2021 — nearly 1% of all the corporate income taxes collected by the US government that year.
Buffett struck a deal to buy Alleghany for nearly $12 billion in March. Berkshire completed its takeover of the insurer in October, ending a years-long drought on the acquisition front.
The investor showcased his trademark approach to dealmaking, which prizes trust and simplicity. He proposed the merger over dinner with Alleghany’s CEO, who previously ran a Berkshire subsidiary, and the pair formally announced a deal less than two weeks later.
Buffet also refused to budge on the deal terms, and when Alleghany enlisted Goldman Sachs as a financial advisor, he insisted the investment bank’s fee was subtracted from Berkshire’s offer price.
An epic buying spree
Berkshire plowed a net $41 billion into stocks in the first quarter of 2022, setting a new record for its quarterly spending on equities.
Buffett and his team built large stakes in HP, Chevron, Occidental Petroleum, Citigroup, Paramount, and Taiwan Semiconductor in the first nine months of 2022. Berkshire also spent over $5 billion on buybacks and made other sizeable purchases, lifting its spending on stocks and acquisitions for the year to an astounding $70 billion or so.
The annual meeting
Buffett hosted Berkshire’s annual shareholder meeting in his hometown of Omaha, Nebraska in April, after two years of virtual gatherings due to the pandemic.
The investor called out the reckless speculation in the stock market, underlined the grave threat posed by inflation, and declared he wouldn’t pay $25 for all the bitcoin in the world.
Buffett made some big moves in 2022 that deserve special attention. For example, he poured a total of about $30 billion into Chevron and Occidental, propelling the pair of oil-and-gas companies onto the list of Berkshire’s most-valuable holdings.
The investor and his team also revealed in November they had boosted their billion-dollar bets on Japan’s five largest trading houses.
In contrast, they sold BYD shares for the first time in 14 years. Berkshire has now slashed its position in the Chinese electric-vehicle maker by around 22%, and pocketed an estimated $1.2 billion profit from the disposals.
An unexpected gift
Buffett made his usual annual donation of Berkshire stock in June, dividing the $4 billion gift between the Bill & Melinda Gates Foundation and four of his family’s charities.
Unexpectedly, he contributed a further $759 million worth of Berkshire stock to his three children’s foundations for Thanksgiving, saying he was proud of their charitable work and wanted to show his appreciation.
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The Swiss investment bank gave a 12-month price target for the company’s class B shares of $362, 17% higher than Wednesday’s closing price of $308.48.
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The analysts point to the recession of 1990, when Berkshire Hathaway’s A shares gained 19% three months prior and during the downturn, though the S&P 500 gained only 10%.
In that same amount of time during the 2007 recession, Berkshire shares lost 24% in value, though the S&P 500 tanked by 37%.
In the recession following the dot-com bust, Berkshire shares saw a 12% return, though the S&P 500 saw a 15% loss during that time period.
The same held true during the 2022 bear market. Though the S&P 500 tanked 20% last year amid rising inflation and aggressive interest rate hikes, Berkshire Hathaway stock rose 3%, helping Warren Buffett surpass former Amazon CEO Jeff Bezos on the list of richest people in the US.
The strong outperformance and its resilience in a theoretical recession is largely due to Berkshire’s oil and gas investments, as well as the general health of its financials, UBS said, which should make the conglomerate “insensitive” to an economic slowdown.
Meanwhile, Wall Street is still portraying a gloomier outlook in 2023, with banks warning of a recession as the Federal Reserve stays aggressive on monetary policy. That could push the economy into a downturn, experts warn, with Morgan Stanley, Bank of America, and Deutsche Bank predicting a roughly 20% decline in the S&P 500 in the first half of the year.
