What's going on?
Filings this week showed that Berkshire Hathaway has bought a stake in HP – the third company to get Buffett’s multibillion dollar stamp of approval in the last few weeks.
What does this mean?
Berkshire’s investments are like buses: you wait an eternity for one, and three come along at once. First, the conglomerate bought insurance firm Alleghany for $12 billion, following up with $8 billion worth of Occidental Petroleum’s stock. And now Berkshire’s adding $4.2 billion worth of HP’s stock to that tally – a move that’ll turn the conglomerate into the PC company’s biggest shareholder. That’s an endorsement of HP’s shift in strategy if ever there was one: the computer firm recently bought workplace hardware solutions company Poly, and it’s planning to push deeper into areas like 3D printing and gaming too.
Why should I care?
Zooming in: “Be greedy when others are fearful.”
This sudden bullishness makes sense: the combination of interest rate hikes and the Ukrainian war have knocked global stock markets, which means Berkshire – which specializes in finding stocks that are going cheap – can do exactly that. Thing is, stocks are down all over the world, so the fact that Berkshire’s chosen three American companies has made analysts hopeful that Buffett sees long-term growth in the US – even if there is a slowdown in the meantime.
The bigger picture: Inflation hurts.
Buffett has previously warned against holding too much cash at the best of times, given that its value will just be eroded by inflation. So these latest purchases might just be a savvy way to put Berkshire’s cash mountain to work. Too right: at the current inflation rate, the company’s near-$150 billion stockpile would only be able to afford half as many goods and services within 10 years as it can today.