2023 Q3 Mid-Quarter Market Update – Warren Buffett Turns 93

Happy birthday, Mr. Buffett!

Warren Buffett, the legendary investor and Chairman and CEO of conglomerate Berkshire Hathaway, will turn 93 years old on August 30.¹

Last weekend Berkshire Hathaway reported its highest ever quarterly operating profit of $10 billion,² propelling the Class A shares of Berkshire to a record high of $556,117.   Buffett gained control of Berkshire in 1965 for $20 per share.  The stock has never split and is therefore up almost 28,000 times since he took control. Buffett still owns 15% of the company even after annual donations totaling $50 billion worth of the stock since 2006 to the Gates Foundation and four other foundations. His 15% stake is currently worth over $120 billion.³  The Buffett and Berkshire 58-year story is an awesome reflection of the long-term power of private enterprise and compounding investment returns.

Berkshire’s wide range of internally run businesses plus its investment portfolio of holdings in outside companies like Apple, American Express, Bank of America and Coca-Cola gives shareholders and investors insight into overall business conditions when it reports.   In the latest report the strongest results occurred in its insurance, aviation, and automotive operations, while its railroad, building, consumer products, and non-auto retail were weaker performers.

The massive cash generation of its businesses has benefited from higher interest rates as Buffett is now parking $142 billion in cash and Treasury bills, which is an increase of over $14 billion since last quarter.⁴ Overall, Berkshire’s results are consistent with the largely better than expected results reported by US companies over the last few weeks — 79% have beat earnings expectations.⁵

Solid Earnings, but What About the Markets?

The solid earnings reports have confirmed the strength in markets through July, but markets have seen some cracks this month.   Last month Roger Hewins wrote about the ‘Magnificent Seven’ — the leading technology growth stocks (and the seven largest in the S&P 500). Two key members of the ‘Seven’ — Apple and Microsoft — did not quite live up to the very lofty expectation of investors when they reported, and those two have quickly corrected by more than 10% from recent highs.

A US debt downgrade by Fitch and downgrades of credit ratings of certain banks by Moody’s has caused some overall angst about government spending, deficits, interest rate levels, and credit quality in the financial and real estate sectors. The full impact of the interest rate increases by the Federal Reserve has yet to be felt in the economy.

Inflation has moderated to the low 3% range over the last two months, and it’s possible that  inflation may continue in the 3-4% range. While the Fed may have stopped raising rates, it may be quite a while before they feel comfortable lowering them.  There is still plenty of debate about whether the economy will fall into recession, and, if there is a recession, how severe it may be.  We are also in the statistically weakest season (August-September) for the markets,⁶ so a choppy and more volatile period may be in store for the next several weeks.  We’ll see.

“Don’t get too greedy and don’t get too scared”⁷

Another famous long-term investor, Shelby Davis, is credited with the above quote.  I think of it often when markets are either rallying or correcting.  Buffett has provided similar perspective– “be fearful when others are greedy, and greedy when others are fearful.”⁸ 

‘Buy low, sell high’ is a lot easier to say than to do.  It is an important role that we at Team Hewins play for you, our clients.  You have hired us to put some distance between the natural emotions of fear when markets fall and exuberance when they rise.   We set asset allocation targets to implement an incremental ‘buy low, sell high’ discipline and will rebalance to those targets if significant market moves up or down occur to bring portfolios back in-line with policy.

The diversification across global equity and fixed income markets and strategic program tilts to value investing also add to the ‘buy low, sell high’ discipline. In that sense the Team Hewins approach ensures that your managed portfolio will not get ‘too greedy nor too scared’.   While we cannot promise the same level of success that Warren Buffett has attained, we are confident that adhering to common-sense principals that keep emotions in check (like Warren has) will drive your investment program towards long-term success.

Thank you, Warren!  Have a Happy 93rd birthday!

1. Bary, Andrew. “Berkshire Class a Stock Hits Record in Early Birthday Present for Buffett.” Barron’s, 3 Aug. 2023, www.barrons.com/articles/berkshire-class-a-stock-record-164e0a85?
2. Reuters. “Berkshire Hathaway Posts Quarterly Profit of Nearly $36 Billion.” The New York Times, 5 Aug. 2023, www.nytimes.com/2023/08/05/business/berkshire-hathaway-earnings.html.
3. Bary, Andrew. “Berkshire Class a Stock Hits  Record in Early Birthday Present for Buffett.” Barron’s, 3 Aug. 2023, www.barrons.com/articles/berkshire-class-a-stock-record-164e0a85?
4. Gambino, Gary. “Berkshire Hathaway Stock: Q2 Earnings Results Blew Away the Bears.” Seeking Alpha, 6 Aug. 2023, seekingalpha.com/article/4624656-berkshire-hathaway-stock-q2-earnings-results-blew-away-bears.
5. Mian, Sheraz. “Tech Sector’s Earnings Outlook Reflects Improvement.” Zacks Investment Research, 9 Aug. 2023, www.zacks.com/commentary/2134496/tech-sectors-earnings-outlook-reflects-improvement?
6. Ballinger, Steve. “What Is the Best and Worst Months to Invest in Stocks?” Investing Education With Mr.B, www.investingeducationwithmrb.com/blog/best-worst-months-to-invest-in-the-stock-market.
7. “Wisdom of Great Investors – Quotes.” Davis ETFs, www.davisetfs.com/investor_education/quotes.
8. Brownlee, Adam P. “Warren Buffett: Be Fearful When Others Are Greedy.” Investopedia, Nov. 2022, www.investopedia.com/articles/investing/012116/warren-buffett-be-fearful-when-others-are-greedy.asp.

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