Avid readers may remember that Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) had a consecutive selling streak of eight quarters since October 2022, having sold more stocks than purchased. During 2024, Buffett put over 615 million Apple (NASDAQ:AAPL) shares on the chopping block, selling off ~67% of the stake by the end of September.
Although this was not near the very AAPL top, which happened near the year’s end at $258, Buffett still made gains, having sold them above $207 per share. Now that AAPL stock reverted to May 2024 price level at $188, Buffett’s strategy is all the more impressive in hindsight.
Moreover, during the prolonged stock selloff period, Berkshire had accumulated a record $334.2 billion in cash by the end of 2024, around half of the portfolio’s worth. This prompted speculation about where that capital will find itself.
And now that worldwide tariff realignment scared markets into negative 13.5% year-to-date S&P 500 (SPX) performance, Buffett has more dry powder than ever before. The question is, which deeply discounted equities is Buffett likely to buy?
Recession Odds Are Up for 2025
From last week’s 39%, Polymarket’s US recession odds went up to 64% at press time. This aligns with last Friday’s estimate by JP Morgan, having pinned the full year 2025 real GDP growth at negative 0.3% vs the prior estimate of positive 1.3%. The bank now upped the recession odds from 40% to 60%.
Likewise, economist Jonathan Pingle at UBS noted that:
“The forcefulness of the trade policy action implies substantial macroeconomic adjustment for a $30 trillion economy.”
However, it bears keeping in mind that significant recession calls were also present throughout 2023. Yet, the recession failed to materialize, at least in an official capacity. But if there is one ahead, where would Buffett’s substantial reserves go?
Buffett’s Prior Recession Commitments
Outside of the micro-recession in March 2020 due to lockdowns, the closest recessionary period was between end-2007 and mid-2009, known as the Great Recession. During that time, Buffett’s inflows mostly went into healthcare and financials:
- Healthcare: Johnson & Johnson (NYSE:JNJ), Sanofi (NASDAQ:SNY), UnitedHealth Group (NYSE:UNH), WellPoint (NYSE:ELV) (now Elevance Health)
- Financials: Goldman Sachs (NYSE:GS) ($5B), and Bank of America (NYSE:BAC) (another $5B) while keeping stakes in M&T Bank (NYSE:MTB), U.S. Bancorp (BVMF:USBC34), American Express (NYSE:AXP) and Wells Fargo (NYSE:WFC).
Berkshire also invested in consumer discretionary CarMax (NYSE:KMX), a used car retailer, and consumer staples Kraft Foods (now Kraft Heinz (NASDAQ:KHC)) and candy maker Mars (to acquire Wrigley for $23B). The rest went into the transportation sector, having acquired Burlington (NYSE:BURL) Northern Santa Fe (BNSF) for $26 billion, alongside industrial Dow Chemical (NYSE:DOW). Previously in 2006, Union Pacific (NYSE:UNP) was Berkshire’s main focus in the transportation sector but shifted to BNSF.
Interestingly, at that time near the end of 2010, Dow Chemical was giving Berkshire a generous 8.5% dividend yield, having generated $382.5 million for the investing conglomerate. Reminder, this is one of Berkshire’s key strategies.
While not paying dividends itself, over half of Berkshire’s portfolio consists of dividend-paying stocks. In turn, those yields are reinvested instead of distributed to shareholders. This is why Berkshire typically outpaces S&P 500 although some years are better than others.
Making for an unusual hybrid tech/real-estate pick, Buffett selected data center company Iron Mountain (NYSE:IRM), which is also a specialized REIT. In 2008, Buffett also invested $3 billion in General Electric (NYSE:GE) for a 10% annual dividend. After redeeming the GE stock in October 2011, Berkshire got away with $3.3 billion plus $900 million in dividends from the 3-year yield.
Investing in oil company ConocoPhillips (NYSE:COP) was one of the failures during this time, having suffered $1.53 billion loss by mid-2009 as oil prices dropped. Overall, Buffett was not only shoring up the financial sector but counting on a new economic cycle to service consumption, industry and transportation.
- Financial services – lending during and after recovery.
- Energy/industrial/transport – fueling the economy and feeding off the recovery.
- Consumer staples – capturing the spending surge as confidence returned.
Warren Buffett’s brand also added an America First flavor that helped stabilize the market. In turn, his investments represent a value-creation feedback loop few investors could replicate at such scale. In the aftermath of the Great Recession, Buffett was proven correct.
“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later.”
Buffett’s Lockdown Exits
During the pandemic narrative, Berkshire Hathaway suffered a $49.7 billion net loss for Q1 2020. However, it only took one year to turn this into a $11.7 billion net profit. This was despite spending $6.6 billion on stock repurchases (BRK.A and BRK.B).
Buffett adapted his investing philosophy to the novel narrative, having entirely exited exposure to Pfizer (NYSE:PFE), JPMorgan Chase (NYSE:JPM), Goldman Sachs, PNC, Barrick and M&T during 2020. Other exits during the year included air transport, from American Airlines Group (NASDAQ:AAL) and Delta to United and Southwest.
This mirrors the unique situation of that time. Specifically, that bank shoring was not needed because the Federal Reserve intervened with near-zero funds rate and elimination of reserve requirements.
The Bottom Line
While still holding large stakes in Apple and Bank of America, Buffett turned his attention to staple Japanese companies this year: Mitsubishi, Mitsui, Marubeni, Sumitomo and Itochu. Having raised Berkshire stake to 8 -10% stake (around $23.5 billion total) in these companies, Buffett noted in his annual shareholder letter that Japan’s managerial elite is “far less aggressive in their compensation programs” compared to the US.
Berkshire’s more diversified portfolio paid off, as BRK.A stock is down just 2.2% while AAPL stock dropped by 24% over a month’s period. For retail investors, it is already clear that defensive stocks, such as Kroger (NYSE:KR), are holding up, having remained in the positive territory at 3.5% for the same period.
Bolder investors looking for higher gains should also look at MicroStrategy (MSTR) and Pfizer (PFE), as both have great fundamentals at their new-found price points.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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