3 Lessons to Learn from Warren Buffett’s Recent $50 billion Spending Spree

Today (May 19, 2022) the S&P500 is down 17%from its high.  But that hasn’t stopped Warren Buffett and his conglomerate Berkshire Hathaway from taking $50 billion of cash and investing it over the past 5 months.  

Warren is considered the greatest investor of all time, turning $100 into a personal fortune of $111.8 billion during his lifetime, all through buying and selling stocks.  If there is anyone investors should pay attention to behaviorally during bad markets, it’s Warren Buffett.

‍Lesson 1 – Buffett doesn’t wait for the bottom of the market to begin buying

Buffett throughout his career has experienced nearly 25 bear markets, some of which were all out market crashes.  If there is anyone who might have a hunch that the economy may go into a recession today, it’s Warren Buffett.  Yet, he doesn’t wait to start buying companies that may be selling at a discount.

Buffett knows full well how unpredictable markets can be and how little control he has over them. What he is in control of, is being able to buy when the price insight.  

He’s been quoted saying “I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” followed with “If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do.… If you’re right about the businesses, you’ll end up doing fine.”

Lesson 2 – Buffett doesn’t care that his investment might go down in value initially

Buffett knows full well that many of the investments he’s making today are likely to go down initially after purchasing.  This doesn’t bother him.  

It comes back to his idea of it being foolish not to take advantage of a good bargain when it’s right in front of him, because, although he might have a hunch markets could get worse, the markets will do whatever they do and Buffett could end up losing out on the opportunity if he doesn’t act.  

Buffett also plays a long-term game.  When he is buying something, it’s because he believes that the opportunity for a return over the next 5+ years is likely.  What happens over the next year is irrelevant.

His actual view is that if a good company goes down in value initially, it’s an opportunity to buy more at an even better price, which leads us to the last lesson…

Lesson 3 – Buffett doesn’t shoot all his bullets at once

Berkshire Hathaway had nearly $150 billion in cash at the end of 2021.  They have taken about 1/3rdof this and put it to work during the past 5 months.  Although Buffett isn’t going to let his opinion of what might be around the corner interfere with good buying opportunities, I do believe he uses his understanding to guide how aggressive he is with his purchases.

There is a good chance Buffett believes things are going to continue to get worse and he wants the ability to buy more when they do.  And because of this, he’s not going to deploy the full $150 billion all at once.  He’s going to nibble on the way down, and you might even see him take some massive bites if things get messy.

Conclusion

Buying into weakness will always yield better long-term results than buying when things are going up in value.  Don’t wait for the bottom to put investible cash to work.  Know that your investment might go down in value initially, and that’s all right.  Money invested in stocks is meant for the long-term, not the next year.  And lastly, if you have significant cash sitting on the sidelines, you don’t need to put it to work all at once.  It’s all right to invest it systematically over time.

- Brandt Butt, Portfolio Manager/Investment Advisor, CIM®

Brandt is an Portfolio Manager/Investment Advisor and part of an award-winning team at Endeavour Wealth Management with iA Private Wealth. Brandt’s focus is working with incorporated physicians and dentists between the ages of 35-45 who are looking to set themselves up on the right financial path in hopes of reaching a point where they are choosing to work, instead of having to.

This information has been prepared by Brandt Butt who is a Investment Advisor/Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iAPrivate Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor/Portfolio Manager can open accounts only in the provinces in which they are registered. iA PrivateWealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.