What Should Berkshire Hathaway Do in 2022?

I am quoted in this Business Insider article:

Warren Buffett is ready to deploy $80
billion if the market crashes this year. 7
experts say the investor should trim his
Apple stake, acquire luxury brands, or
buy some blue-chip stocks in the
meantime.

Theron Mohamed

• Warren Buffett’s Berkshire Hathaway has refused to overpay for stocks and
acquisitions.
• The investor’s company could capitalize if interest-rate hikes reduce asset
prices this year.
• Experts say Buffett should trim his Apple stake, buy luxury brands, and
bolster his stock portfolio.

Warren Buffett’s nose for bargains made him a centibillionaire. Now he has $80 billion to
spend but almost nothing to buy.
The famed investor and Berkshire Hathaway CEO has struggled to find deals as stocks have
soared to new heights, private equity firms and SPACs have priced him out of acquisitions, and a
surge in his own company’s shares has made buybacks less compelling.
Buffett’s fortunes could turn if the Federal Reserve hikes interest rates this year to dampen
inflation. If other investors pull their money out of equities and other risky assets, and higher
borrowing costs deter buyers of businesses, Berkshire might be able to snap up some highquality stocks and companies at knockdown prices.
We asked seven experts to discuss Berkshire’s outlook for 2022, and share what they’re hoping to
see from Buffett this year. Their suggestions included trimming his monstrous Apple stake,
buying a luxury brand or two, and adding some proven winners to his portfolio.
Here are the 7 experts’ comments, lightly
edited for length and clarity:
1. Paul Lountzis, the founder and president of Lountzis Asset Management:
“We would like to see Berkshire follow Charlie Munger’s advice: ‘Investing is where you find a
few great companies and then sit on your ass.’ In other words, just sit tight until you find the
slow, hanging curveball, then take a big swing and buy a great deal of stock.
We want Buffett to keep building cash and staying patient until he is comfortable buying, and we
don’t care how long that takes. However, we would like to see him sell some Apple stock as we
believe it is a bit frothy — a great company but a very high price.”
2. Lawrence Cunningham, a law professor at George Washington University
and the author of several books about Buffett and Berkshire:
“The best businesses to own during inflationary periods are those that require little incremental
capital and enjoy pricing power with customers. Warren has used See’s Candies as an example.
Today, I’d look to luxury brands, particularly those led by founders who are aging, or whose
descendants may find Berkshire’s culture of autonomy and permanence to be appealing.
Titans like LVMH are too big, but there are many smaller, family businesses like Fendi,
Ferragamo, Prada, or Versace. Even Berkshire’s famously frugal shareholders would welcome
these brands to the company — and certainly like the discounts available during the annual
meeting.”
3. Bill Smead, the founder and CIO of Smead Capital Management:
“Berkshire looks attractive if a full-blown bear market like the one in technology stocks plays
out. However, Buffett’s signature bargains might arise after he isn’t around anymore. Therefore,
risk tied to mortality could enter the picture before the bargains avail themselves.”
4. David Kass, a finance professor at the University of Maryland:
“If the Federal Reserve’s projected interest-rate increases result in the stock market declining by
at least 10% in the coming months, that may provide a fertile background for Berkshire to invest
some of its $150 billion in cash.
Berkshire’s recent, $1 billion yen-bond issue may indicate future investments in Japan. On the
other hand, more aggressive US antitrust policies may discourage Berkshire from acquiring
companies.”
5. Darren Pollock, the portfolio manager at Cheviot Value Management:
“Warren Buffett would not repurchase shares automatically and at any price. If we see buybacks
continuing at a strong pace, it will be a clear indication that Berkshire shares are still a better
bargain than most, if not all, of the other large-cap opportunities that Buffett and his team are
considering.
We would like to see the team at Berkshire increase their stake in a few undervalued holdings,
including Charter Communications, Visa, and Mastercard. It also wouldn’t surprise us to see
shares of Comcast and Unilever added to the portfolio. These are businesses that are easy to
understand and relatively ‘boring,’ but they produce consistent cash flows and the shares appear
relatively inexpensive.
While the cash pile at Berkshire may grow, we firmly believe that there are far worse things than
having dozens of businesses that produce an abundance of cash every month. But maybe we’re
old fashioned.”
6. Adam Schwartz, the CIO of Black Bear Value Partners:
“We would like to see continued rational capital-allocation decisions. While the stock is not as
intrinsically cheap as it has been the last bunch of years, it is still reasonably cheap.
Berkshire’s businesses continue to grind forward, compounding value. Given the overall tech
concentration (and associated high prices) in the S&P 500, we would expect modest
outperformance from Berkshire versus the index over the coming decade.”
7. Adam Mead, the CEO and CIO of Mead Capital Management and the
author of “The Complete Financial History of Berkshire Hathaway”:
“Last year, shareholders got lucky with the market giving Buffett a single opening for major
capital allocation in the ability to repurchase Berkshire shares. I’d hate to see that window close
this year.
Generally speaking, periods of turmoil serve Berkshire well. When the leveraged-buyout boom
busted in the 1980s, Berkshire swept in and picked up Fechheimer and Scott Fetzer. The dot-com
bust saw Berkshire pick up lot of ‘boring’ cash generators like Shaw, Acme Brick, Fruit of the
Loom, Johns Manville, and Benjamin Moore. If a credit bust happens, you might see Berkshire
pick around the junk-bond pile. Anywhere there’s value.
Higher interest rates mean a lower supply of financing for Berkshire’s competitors. That would
bode well for a conglomerate sitting on a huge cash pile.
Berkshire’s secret weapon is the “float” from its insurance operation, or the difference between
the premiums it has collected and the claims it has paid out. Berkshire’s cost of float has been
negative, meaning it’s been paid to hold other people’s money. When rates rise, if Berkshire can
continue to generate cost-free float, it effectively has borrowing power at a cheaper rate than the
US Treasury.”