The Lemon Fool

I was surprised to hear last night that Buffett has bought a significant stake in Barrick Gold and ditched sizable holdings in Goldman Sacks, Wells Fargo etc. It seems he doesn't have a lot of faith in the US economy, or at least less than he used to have.

MM

https://www.bloomberg.com/news/articles ... lion-miner

MaraMan wrote:I was surprised to hear last night that Buffett has bought a significant stake in Barrick Gold and ditched sizable holdings in Goldman Sacks, Wells Fargo etc. It seems he doesn't have a lot of faith in the US economy, or at least less than he used to have.

It isn't necessarily a Warren Buffett purchase. The smaller purchases made by Berkshire Hathaway tend to be made by Todd Combs or Ted Weschler, both of whom invest money for Berkshire separately from Buffett. Todd and Ted have a lot of a leeway in how they run their portfolios.

Todd and Ted each run a small portfolio of something like $15 billion (small by Berkshire standards; Berkshire's Apple shareholding on its own is currently worth $112 billion). The Barrick Gold purchase looks more like one of theirs. This happens regularly; Berkshire makes a small investment, the media gets excited that "Buffett is buying" and soon afterwards it emerges that it was Todd and/or Ted who did it. That's what happened when Berkshire bought Amazon last year.

The sale of Wells Fargo isn't a surprise to those of us who follow Berkshire. Wells Fargo badly screwed up (to put it mildly) when it emerged that from 2011 to 2016 it had been pushing staff to fraudulently open accounts for customers in order to charge fees. Berkshire couldn't just dump its shareholding in Wells Fargo, because it was so large, so Buffett has been gradually selling it.

https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scandal

Buffett hasn't given up on America. Berkshire recently bought a lot of Bank of America shares, increasing its state to 11.5%.

They have a problem of size. However it is not surprising that they have bought into a gold miner. It may not be a long term investment, but I think it is good in the short to medium term. I have gone for PAF.

It has been reported that he feels the US is set for a period of "stagflation" and so I guess getting into gold makes sense, despite his prior reluctance to do so. He's not known for short term investments.

I wonder what the US markets reaction will be to Biden winning the election? Assuming he does, which is dangerous. I would guess that it is priced in at this point, which is encouraging.

MM

MaraMan wrote:It has been reported that he feels the US is set for a period of "stagflation" and so I guess getting into gold makes sense, despite his prior reluctance to do so. He's not known for short term investments.

I wonder what the US markets reaction will be to Biden winning the election? Assuming he does, which is dangerous. I would guess that it is priced in at this point, which is encouraging.

MM

I assume you mean that assuming Biden wins the election is dangerous; the man himself looks less dangerous than Trump.

Dod

Dod101 wrote:
I assume you mean that assuming Biden wins the election is dangerous; the man himself looks less dangerous than Trump.

Dod

Yes sorry Dod, I meant its dangerous making the assumption that Biden wins, but I pray that he does.....

MM

Don't be sorry, MM. I should not have commented.

Dod

MaraMan wrote:

Dod101 wrote:
I assume you mean that assuming Biden wins the election is dangerous; the man himself looks less dangerous than Trump.

Dod

Yes sorry Dod, I meant its dangerous making the assumption that Biden wins, but I pray that he does.....

MM

Be careful what you wish for. Since his election to presidency in Jan 2017 US stocks have broadly gained >10% annualised real (after inflation), even despite Covid-19. There must be significant weight behind many seeing those rewards (and more) being lost if Biden wins. And in the US sneezing others such as the UK could endure a pretty nasty cold.

Yes that's definitely a plausible scenario, which is I why I posed the question really. It is the conventional wisdom, but it might also be said that Trump's mishandling of so much that is in the bailiwick of the President could lead to a similar loss of confidence by the markets. I am also not certain that Trump can take all the credit for the rise in the markets (some might say unhealthy rise), I personally am not certain the same might have happened under HC. Anyway we will find out pretty soon, I am worried that the pricing of the big 5 is heading for a crash whatever happens in the election.

MM

Way I see it is that tangible assets ('Value') are out of favour, when that cycles - perhaps as interest rates/inflation rises (as more often attempting to induce inflation causes a over-shoot when inflation does arise) or some other factors, so the big 5 may see outflows into others. The fearful flight into the US$ (and gold) will also at some point turn around and investors seek 'better value' elsewhere. Even the mere relative out-performance of the US is a factor that tends to induce investors looking to diversify away from those gains. Trends can sustain for long periods of time, perhaps BRK is just introducing a initial small 'insurance' that it might build upon the longer the trend runs to increasingly hedge the risk the greater/higher-up that trend runs. If 20% of the market value is concentrated into a common single risk factor, where 80% of that value could vapourise rapidly then a low cost insurance/hedging of that risk could lead to being 20% up compared to not having hedged/insured.

BRK has a large cash pile, of the order 140 billion relative to perhaps 400 billion book-value, so around 75/25 equity/cash. BRK also has access to a mountain of free-cash (insurance premiums paid in in lieu of claims being paid out). But zero cost money in the current era is common. The 'competitive' advantage is very low compared to when interest rates (cost of capital) were much higher.

1nvest wrote:Way I see it is that tangible assets ('Value') are out of favour, when that cycles - perhaps as interest rates/inflation rises (as more often attempting to induce inflation causes a over-shoot when inflation does arise) or some other factors, so the big 5 may see outflows into others. The fearful flight into the US$ (and gold) will also at some point turn around and investors seek 'better value' elsewhere. Even the mere relative out-performance of the US is a factor that tends to induce investors looking to diversify away from those gains. Trends can sustain for long periods of time, perhaps BRK is just introducing a initial small 'insurance' that it might build upon the longer the trend runs to increasingly hedge the risk the greater/higher-up that trend runs. If 20% of the market value is concentrated into a common single risk factor, where 80% of that value could vapourise rapidly then a low cost insurance/hedging of that risk could lead to being 20% up compared to not having hedged/insured.

BRK has a large cash pile, of the order 140 billion relative to perhaps 400 billion book-value, so around 75/25 equity/cash. BRK also has access to a mountain of free-cash (insurance premiums paid in in lieu of claims being paid out). But zero cost money in the current era is common. The 'competitive' advantage is very low compared to when interest rates (cost of capital) were much higher.

Value investing has been out of favour for a long while but more important, Berkshire's mountain of free cash is not 'insurance premiums paid in lieu of claims being paid out' and you may not have meant to say that. The mountain of cash is probably mostly the free float of reserves held against the day when claims may need to be paid. I think Berkshire's advantage is that it is truly 'free' money and it belongs to Berkshire or at least its insurance subsidiaries, not free borrowings, and no one is going to foreclose on it. In fact very if any few borrowings will be entirely free anyway.

Dod

MaraMan wrote:Yes that's definitely a plausible scenario, which is I why I posed the question really. It is the conventional wisdom, but it might also be said that Trump's mishandling of so much that is in the bailiwick of the President could lead to a similar loss of confidence by the markets. I am also not certain that Trump can take all the credit for the rise in the markets (some might say unhealthy rise), I personally am not certain the same might have happened under HC. Anyway we will find out pretty soon, I am worried that the pricing of the big 5 is heading for a crash whatever happens in the election.

MM

Don't we have a political thread for this sort of speculation?

It's difficult to change thread mid-way through a discussion