investments

Warren and Charlie meet in sunny California

Business

Michael D’Angelo, Staff

Vintage Value Investing

Pictured above is Berkshire Hathaway’s chairman and CEO Warren Buffet and Executive Vice Chairman Charlie Munger. Both men practice a value investing strategy and have created impressive returns for their shareholders.

Over the weekend, Berkshire Hathaway held their annual shareholder meeting in Los Angeles, California. For the first time ever in the company’s long history, they held a shareholder meeting outside of Omaha, Nebraska. The meeting was headed by Berkshire’s executive staff, CEO and Chairman Warren Buffet and Executive Vice Chairman Charlie Munger. 

Both Buffett and Munger are hailed as some of the greatest investors of all time. They believe in a value investing strategy influenced by the principles of Benjamin Graham. Graham is most famous for developing the Margin of Safety principle and for writing the finance classic “The Intelligent Investor.” In addition, they are greatly influenced by the strategies of Phil Fisher, the author of “Common Stocks and Uncommon Profits” who famously believed the best time to sell a stock is never. Buffett and Munger emphasize a long-term investing strategy with an emphasis of finding “cheap” companies that appear to be trading below book value in the market. They own portions of great American corporations like Coca-Cola, Apple, Bank of America, Verizon and American Express.             

At the meeting, Buffett and Munger fielded and answered various questions. With their growing age, they confirmed their eventual successor: Greg Abel, a current Vice Chairman, will take over as CEO and direct operations. Buffet emphasized his belief around stock picking for the average investor. He stated, “I do not think the average person can pick stocks.” His suggestion, instead, was to diversify into American equities and purchase a fund which follows the performance of the S&P 500. Buffet has made this point plenty of times in the past. 

Both Buffett and Munger took jabs at the recent rise in SPACs and believe more people are turning to the market in a gambling-like sense. Buffet even went as far as calling SPACs an “exaggerated form of gambling.” A SPAC is a company that raises money through an initial public offering (IPO) with no commercial operations to acquire another existing company. They grew in popularity in 2020 as both a speculative investment and a way for companies to raise capital. 

To add to the sense of increased gambling in the markets, Buffett and Munger stated their opinions about online trading app Robinhood. They both said the app encourages gambling due to the easy access of speculative call and put options. Munger even called the app shameful. In the past, they criticized Robinhood’s selling of order flow data and commission free trades. An executive from Robinhood responded by saying “the people are tired of the Buffets and Mungers of the world acting like they are the only oracles of investing.” The most controversial statement of the weekend was when Munger took a strong jab at cryptocurrency. He went so far as to say Bitcoin’s success is disgusting and contrary to the interests of civilization. In the past he has called Bitcoin “worthless artificial gold.” 

The meeting concluded and many people took an opportunity to analyze both Buffet and Munger’s statements. Both men have led Berkshire for decades with expectational investment returns and their statements may prove important for investors looking for guidance. 

The Oracle of Omaha speaks — Financial Commentary

Business

Michael D’Angelo, Staff

USA Today

Berkshire Hathaway’s CEO, Warren Buffett (right), and Vice Chairman, Charles Munger (left). Buffet is famously referred to as the “Oracle of Omaha.” His value investing strategies have created impressive returns for his company, which he views as a “collection of businesses.”

Warren Buffett is a big name in the financial sector. He is known for his down to earth approach when it comes to investing and his frugal personality despite being worth billions. 

Buffett is the definition of the old-school Midwesterner who places his hope and confidence in his fellow Americans. He disdains Wall Street, instead choosing to operate his infamous holding company, Berkshire Hathaway, from Omaha, Nebraska. He is so frugal he chooses to purchase a McDonald’s breakfast sandwich with exact change every day before he goes into the office but chooses the cheaper option if the markets performed poorly the day prior. In addition, he still lives in the same house that he purchased in the early 1950s. 

Buffett accumulated his wealth by practicing a value investment strategy he learned from Benjamin Graham. This strategy relies on analyzing a company’s book value to determine if it is worth less than the market price. If this occurs, the stock is considered to be an undervalued and a cheap option. Buffett emphasizes buying cheap companies with value and knowing how the company operates. Buffett and Berkshire Hathaway own shares of major companies like Coca-Cola, Apple, General Motors and Verizon. 

In the past week, both Buffett and his company have been popping up over news headlines in many financial publications. This is due to the release of Buffett’s annual letter to shareholders and Berkshire’s 2020 annual report. I had the opportunity to read through Buffett’s letter  and despite some criticism regarding the letter to be socially tone-deaf, I believe he is spot on and paves a strong future for Berkshire Hathaway. 

In the letter, Buffett begins by detailing Berkshire’s earnings of $42.5 billion, then he jumps to emphasizing Berkshire’s retained earnings which he believes are building “value and lots of value.” Both Buffett and Charlie Munger, Buffett’s Vice Chairman at Berkshire Hathaway, view Berkshire as a collection of businesses in which the firm has invested in the “long-term prosperity” of those businesses’ success. He writes in the letter that Berkshire’s main goal is to own parts of, or all of, a diverse group of businesses with good economic characteristics and good management. 

As the letter moves on, Buffett sheds light on a mistake he made in purchasing aerospace company; Precision Castparts. He paid the wrong price for the company and misjudged the average amount of future earnings. Also, Buffett takes a shot at bonds and says that fixed income investors face a bleak future. To increase Berkshire’s profitability, Buffett repurchased back 80,998 A class shares and spent $24.7 billion in the process.  

Despite not addressing the pandemic, social justice protests, and other events of the past year, Buffett confidently concludes, “never bet against America.” Also, he ridicules market gurus and says they can find equities to fit their tastes instead of buying Berkshire. He goes on to describe investing as a positive-sum game where even a monkey can randomly toss darts at a board of S&P 500 companies and profit. This is certainly a response to bull market and retail trader enthusiasm since March. Buffet the letter iterating plans to meet with his best friend, Munger, in Los Angeles and to host the annual meeting on May 1. 

I enjoyed reading the letter and I agree with the legendary investor, we should have faith in America. We need to look forward to our country’s prosperity, despite so many obstacles in our way. After all, why bet against America? A country which holds a report card of economic success and entrepreneurial prosperity achieved by generations. 

dangelom2@lasalle.edu

ESG investing: a path to a resilient portfolio

Business

Bill O’Brien, Editor

Goldman Sachs

Photographed above is Goldman Sachs Senior Advisor Steve Strongin. As the former head of Goldman’s Global Investment Research Division, Strongin has lead Goldman’s research efforts on ESG investing.

Markets are rapidly evolving in nature, especially in today’s climate as they continue to reel in volatility amid a global pandemic. No one can deny that COVID-19 has been a catalyst for drastic change in society and markets, but it is important for investors and people to see that it can catalyze positive change as well. One trend we are looking at moving forward is how investors embrace environmental, sustainability and governance (ESG) investing. Wall Street’s sentiment on ESG investing ranges from stark pragmatism to optimism and hopefulness depending on what financial institution you are asking. 

Earlier this summer, Goldman Sachs covered the topic on their podcast, “Exchanges at Goldman Sachs,” where they cover trends shaping markets. The episode, titled “Sustainable ESG Investing: Turning Promises into Performance,” featured Steve Strongin, a senior advisor at Goldman and former head of its Global Investment Research division. Strongin outlines a report he and his team drew up on ESG investing, outlining a pragmatic viewpoint on how investors should shape their ESG investment strategies. One of the first points he makes is how investors need to think long-term in regards to generating return from ESG-centric strategies. The key idea behind ESG investing is when companies care about the environment, diversity and, overall, how their company is governed, then they will be able to take advantage of greater opportunities in the future and the seizing of those greater opportunities is what garners return in the long haul. Strongin specified that investors should expect a liability of no less than three years, with the possibility of needing to extend that liability based on market conditions. 

Perhaps the most interesting point Strongin made is that people mistake ESG as more of a “bumper sticker” than an investment style, in that they do not view it pragmatically enough: “[People think that] as long it’s on the right side of history, it’s supposed to be a good investment — the world isn’t that kind.” Instead, he brought up carbon as an example of how investors should view ESG as a style of investing. According to Strongin, someday, within the next 5 to 10 years, we will end up with a price of carbon, within the regulations, that will set the “efficient frontier” for addressing climate change. Opportunities investors should look out for are investments that can help companies operate in regulatory environments that are more focused on climate change; for example, a tech company that helps automakers decrease the carbon emissions of their vehicles. 

BlackRock’s “The Bid” lends a different perspective on how sustainability should be factored into investment decision-making in a post-COVID world. Host Mary-Catherine Lader, in the episode titled “Can sustainability accelerate economic recovery?”, brings together some of the brightest minds in the ESG investment space to discuss how ESG investing can spur an economic recovery after the pandemic, which caused massive economic contractions across the globe. Globally, $12 trillion dollars is being injected into the global economy and, as a society, we can use that money to shape markets around sustainability or revert them back to a “business-as-usual, highly fossil fuel driven economy.” Guests on the show made it clear that there is a great opportunity ahead, in large part due to COVID-19, to change course toward sustainability. Guest on the show, Fiona Reynolds, CEO of Principles for Responsible Investment, discussed how people are now beginning to understand how interconnected issues are throughout the world — “if you don’t have healthy people, and you don’t have a healthy planet, then you can’t possibly have a healthy economy. The three things go together.” What this should mean for the investment industry is clear: ESG, or lack thereof, poses risk to markets and participants investing in them. Peter Bakker, CEO and President of World Business Council for Sustainable Development (WBCSD), echoed this sentiment and took it a step further, stating that investors need to begin factoring in companies’ performance in sustainability into its cost of capital.

It sounds far-fetched, but his rationale is based on the assumption that Steve Strongin of Goldman Sachs spoke about: companies that care about the environment, diversity and, overall, how their company is governed, will see higher returns in the long-run and, if we accept this to be correct as it is becoming the overwhelming consensus, we should find ways to price companies based off of their performance in ESG. Financial institutions are beginning to see this as reality more and more but, as guests on “The Bid” later discuss, convincing individuals has been the latest hurdle in convincing the world that ESG investing is an incredible investment opportunity and not just an obligation that must be fulfilled on behalf of all mankind. Guests on the show all agreed that acting as soon as possible is imperative to avoiding the costs that will be incurred for not paying mind to sustainability in our environment and our society. They suggest that, in order to convince policymakers to jump in on that action, the data we use to measure sustainability impact still needs to come a long way. The reality is the more case studies that can be used to demonstrate where sustainability created a value add-on for a portfolio and for markets, the more likely individuals of our society will jump onto the ESG train and pressure their elected officials and other policymakers to do the same.