I am greedy when others are fearful!

In the turbulent season of US stocks

  Since the Federal Reserve started a new round of interest rate hikes in March, U.S. stocks have entered a period of continuous turmoil. The CBOE Volatility Index (VIX), which measures market volatility, hit a new high for the year last week.

Including the US retail investors and many wealthy people who were keen to buy dips before, they are accelerating their withdrawal from US stocks.

  Retail investors snapped up just $14 billion in stocks in April, the second-lowest monthly gain since late 2020, according to Morgan Stanley.

The wealthy are fleeing U.S. stocks at the fastest pace since November in the past four weeks through last week, data from Bank of America's private client unit showed.

  At a time when the volatility of U.S. stocks has intensified and suffered a sharp sell-off, Buffett, the "stock god" who has always adhered to the investment principle of "I am greedy when others are fearful", has once again practiced his investment principles and is aggressively buying U.S. stocks.

bargain hunting

  According to Berkshire Hathaway's 13F position report filed with the U.S. Securities and Exchange Commission (SEC),

Buffett has been aggressively buying U.S. stocks at a time when U.S. stocks have been turbulent for some time.

  Buffett, who has long insisted on value investing, has long adhered to the investment principle of "I am greedy when others are fearful".

But the idea may have been difficult to put into practice for much of the past two years, during which time investor sentiment in U.S. stocks was largely free of "fear."

Now, with U.S. stocks tumbling and volatility increasing, Berkshire is at the perfect time to add to its massive stock portfolio.

  Specifically, the 13F filing showed that Berkshire Hathaway increased its stake in Occidental Petroleum Corp last week.

Previously, Berkshire began to buy shares in Occidental Petroleum in late February. After increasing its holdings again last week, Occidental Petroleum has become one of the top ten stocks it holds.

In addition, over the past few months, Berkshire has also increased its 3.06% stake in Chevron Corp. (CVX), conducted an M&A arbitrage on Activision Blizzard Inc. (ATVI), bought 1.98% of Hewlett-Packard (HP Inc., HPQ), and continued to increase its holdings in Apple Inc. (Apple Inc.), which is still its No. 1 heavyweight stock.

But Buffett reduced his 1.01% stake in Wells Fargo & Co. WFC, once one of Berkshire's largest holdings and a place in Berkshire's portfolio since 1989.

Prefer energy and banking sectors

  Rupal Bhansali, chief investment officer of global equities at Ariel Investments, believes Berkshire's increased holdings in Chevron and Occidental may reflect its bet that commodity prices will rise over a period of time. remained high for a while.

Energy stocks have indeed been the best-performing sector in the S&P 500 this year.

The escalation in Ukraine has sparked fears of oil and gas outages, sparking a surge in commodity prices.

Benefiting from this, Chevron's shares have risen 47% this year, and Occidental's shares have risen 134%.

In contrast, the S&P 500 as a whole has fallen 16% over the same period.

"It's clear that Berkshire's holdings in these energy stocks are a hedge against inflation," Bansari said.

  Energy stocks also fit two of Buffett's traditionally preferred stock-picking characteristics: low valuations and a strong focus on buybacks and dividends, said Jim Shanahan, senior equity research analyst at financial advisory firm Edward Jones. form of return to shareholders.

  Sector aside, U.S. high-dividend-paying stocks have also outperformed the S&P 500 as a whole this year, in part because investors worried about the impact of market volatility are looking for stocks that offer solid cash returns.

"Chevrolet and Occidental fit that profile," Shanahan said.

  In addition to energy stocks,

Berkshire has also stepped up its buying of bank stocks.

Bank stocks as a whole also fit the stock selection characteristics of relatively low valuations and dividends.

Specifically, Berkshire purchased 55 million Citigroup shares in the first quarter, worth about $3 billion.

It marks a reversal in his investing preferences: Buffett has sold major bank holdings in 2020, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo Most of the stocks, and thus missed the notable rebound in financial stocks in the second half of 2020 and full-year 2021.

  "Berkshire received a lot of criticism for not buying financial stocks in March and April 2020," Shanahan said, "but Buffett explained that the reason for buying financial stocks was that they couldn't tell where the sector was going," Shanahan said. The big investing environment was completely different then." He added that while Berkshire missed the opportunity for a post-pandemic rebound in U.S. stocks, he was happy to see Buffett re-investing now.

Sufficient "dry gunpowder"

  As stock volatility continues to rise, many investors and analysts also expect Buffett and Berkshire portfolio managers Ted Weschler and Todd Combs to Will continue to inject cash into the market in the coming months.

  Buffett told shareholders in February's annual letter to shareholders that Berkshire was sitting on a pile of cash at the end of last year, not because Berkshire wanted to raise "preparation money," but because it couldn't find worthwhile long-term investment company.

The company had $106.3 billion in cash as of March 31 and ended 2021 with $146.7 billion in liquid cash.

  However, the U.S. stock market has been on edge this year amid tightening monetary policy, slowing economic growth and ongoing supply chain disruptions, said David Kass, a professor of finance at the Robert H. Smith School of Business at the University of Maryland. This is an environment conducive to Buffett's stock picking.

  Cass said that the current environment is simply Buffett's "sweet spot" (sweet spot). "The sharp sell-off of U.S. stocks by various investors has provided Berkshire with an opportunity to buy the bottom." Bansari also said, " In this environment, Berkshire's large cash on hand is the best dry powder."

Keywords: