Warren Buffett Loses $44B in Q2 2022 but Doesn’t Panic, As He Has Full Confidence in His Strategy.
A great lesson for all investors.
In the past, someone asked Warren Buffett what his golden rule of investing was. The golden rule that made him a phenomenally successful stock market investor for several decades.
Warren Buffet simply answered this:
“Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.”
You will have understood that for Warren Buffett, the secret is capital preservation. You must never lose money in the stock market if you want to be one of the winners in the investment world.
However, that doesn't mean that you won't experience bad times, just like everyone else. Warren Buffett, like you, can't control economic cycles. However, like you, he can control how he will react to the economic cycles in which he will have to operate.
The market has been facing headwinds since February 2022 and the start of the war in Ukraine. The S&P 500 went through a Bear Market that may not be over despite the excellent rebound observed in July 2022.
Over the first 6 months of the year, everyone had to take hard knocks, and this also concerns Warren Buffett. The Oracle of Omaha has just revealed on August 6, 2022, a staggering loss of nearly 44 billion dollars in the second quarter. This is the consequence of the fall of its shares on the stock markets, very shaken during the period.
The first half of 2022 was indeed the worst the New York Stock Exchange has seen since 1970. This is not the first time that the holding company has recorded such a loss: in the first quarter of 2020, the stock market rout caused by the pandemic had already caused Berkshire Hathaway to lose nearly 50 billion dollars.
If Warren Buffett does not panic, it is because the loss is unrealized
Between April and June 2022, the total loss from market investments was $53 billion. It could not be compensated by its operating profit, which grew 39% over the period to $ 9.28 billion, thanks to insurance and railroad activities. Berkshire Hathaway's portfolio is invested in about 50 companies, all of them American: from insurance companies to trains, from energy to frozen desserts.
In total, the group lost 43.8 billion dollars over the quarter, while it had gained 28 billion dollars last year at the same time.
Warren Buffett, however, was keen to temper this:
“The amount of investment gains/losses in any given quarter is generally meaningless.”
The holding company had, by the first quarter of 2022, bought more than $51 billion in stocks, including moving the oil major Chevron into the top four of its investments alongside American Express, Apple, and Bank of America. It had also acquired 14% of Occidental Petroleum, increased its stake in the computer and printer manufacturer HP as well as in the video game publisher Activision - in the process of being bought by Microsoft - and planned to buy the insurance company Allegheny for 11.6 billion dollars.
With his long-term vision, Buffett remains confident in his choices
Warren Buffett is therefore not worried about his loss, which is only latent. Because the secret of Warren Buffett's strategy is to be patient. Once Buffett has chosen to invest in a company, he is ready to be patient and never let himself be dictated to by the attitude of other investors.
Thus, Buffett could have added a third rule when he replied to this investor a few years ago:
“Our favorite holding period is forever.”
This is the reason why the gains/losses during a quarter have no meaning for Buffett who continues to have confidence in his choices. He has already gone through 12 Bear Markets during his career and Warren Buffett learned 4 major lessons that have always worked for him.
Greg Abel is the future successor of Warren Buffett
Warren Buffett also took advantage of the announcement of these quarterly results to announce his future successor at the head of Berkshire Hathaway. It will be the Canadian Greg Abel. Abel, 60, has been with Berkshire Hathaway for several years and was president and CEO of Berkshire Hathaway Energy and vice president of Berkshire Hathaway's non-insurance operations since January 2018.
Greg Abel has the full confidence of Warren Buffett and de facto Berkshire Hathaway investors. It will be up to him to prove that he can do as well as his mentor at Berkshire Hathaway.
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