Buffett’s €97bn hoard that earns ‘only a pittance’

By John Daly

These are testing times for Wall St. Amid concerns of a trade war and fears of tech industry regulation, the stock market kicked off April with its worst start to the second quarter since the Great Depression.

Yet, while many jittery investors considered running for the lifeboats, the Oracle of Omaha - aka Warren Buffett -instead offered this advice: “Don’t watch the market too closely. If people buy and sell stocks, and worry when they go down a little bit, they’re not going to have very good results.”

Famous for his buy and hold philosophy, Mr Buffett has long extolled the policy of looking “at market fluctuations as your friend rather than your enemy”.

While the 87-year old readily admits to many mistakes, the bottom line numbers highlight why so many investors will always follow his lead.

A $1,000 (€814) investment in his company, Berkshire Hathaway, in 1965 would be worth more than $24m (€20m) today.

With the Berkshire Hathaway annual shareholder gathering coming up the weekend after next on May 5 (also known as Woodstock for Capitalists, it is streamed online), Mr Buffett basks in the glory of huge gains of almost 22% in 2017, almost matching the 23% gain of 2016.

What continues to be remarkable about the man who could have exited the financial stage a decade ago as the greatest investor of the age is how effective his name remains when even obliquely associated with possible takeover targets.

Rumours circulated a few weeks ago that Mr Buffett might be interested in taking a stake in General Electric (GE). Its shares surged by more than 4%.

The Oracle of Omaha has a well-charted record of investing in established businesses whose share price is experiencing temporary declines.

Ahead of the Berkshire Hathaway AGM, Mr Buffett’s eagerly awaited annual letter to shareholders shows the usual mix of investing wisdom and wit on the perils and opportunities in the market.

On why the company hadn’t done any major deals in 2017, he said: “In our search for new standalone businesses, the key qualities we seek are durable competitive strengths, able and high-grade management, and a sensible purchase price.

“That last requirement proved a barrier to virtually all deals we reviewed in 2017.”

Noting that “price seemed almost irrelevant to an army of optimistic purchasers,” Mr Buffett said: “Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. In short, don’t ask the barber whether you need a haircut.”

Given the magnitude of the Berkshire Hathaway cash war chest, at almost $120bn (€97.7bn), Mr Buffett is clear in his intentions of buying big in 2018 but only if the right deal presents itself.

“Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions.

“This extraordinary liquidity earns only a pittance and our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets,” he said.

On the turbulence of the markets, Mr Buffett said: “Though markets are generally rational, they occasionally do crazy things.”

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