Buffett backs energy
The energy has sector has had a dismal past six years, and got absolutely monstered in early 2020 as the global recession and the associated drop in demand saw a global oversupply and commodity prices cratering.
As a result the sector became very cheap (with the US-listed energy ETF plummeting - here is NYSE: XLE crashing from close to $100 in 2014 to just $25 last year), thus offering strong income and growth prospects over the coming decade.
It came to light today via Berkshire Hathaway filings that Buffett (or possibly the money managers Ted and Todd) took a thumping US$4.1 billion stake in Chevron in late 2020, with a forward dividend yield of above 5 per cent and the oil price now already having partly recovered.
Berkshire also took a massive US$8.6 billion stake in the somewhat beleaguered telco Verizon, following Buffett's traditional model of buying cheap businesses which will compound powerfully over time while the income streams increase.
It's one part of the way in which he compounded returns at 20 per cent per annum from the early 1970s.
As we've covered in our podcast, for Buffett it's more about the mispricing that chasing growth for its own sake.
Buffett has said in recent times that you can bet on America, but you need to very careful about how you place those bets.
This is the antithesis of what most are doing at the moment with everything from crypto to real estate to effectively worthless alternative meat companies being bid up to the moon and traded like Panini stickers.
Buffett's inference appeared to be that despite the fall last year, many markets weren't necessarily all that cheap, and prices could do almost anything, so bet with caution.
And markets have seldom been as wild as they are right now, but many fund managers are feeling compelled to chase the gains into gaming companies, Bitcoin, and beyond.
To say that it's going to be an interesting few years ahead awaiting who comes out on top is an understatement!
