00:00 Seana Smith
Filings confirming Warren Buffett’s Berkshire Hathaway raising its stake in five Japanese trading houses. Buffett forecast this move in his annual shareholder letter, sharing that the trading houses relaxed the 10% cap on Berkshire holdings. Analysts expecting that move to provide a modest boost to Japanese equities. The Nikkei 225 is down 6% year to date. But you can see those Japanese trading houses that Buffett has been piling into all moving to the upside in today’s trade, at least. But this points to an interesting question, Adam, which is this focus on what Warren is up to that we get a lot of questions about here at Yahoo Finance. Selling his US equity holdings, a little bit more in cash, looking abroad.
00:46 Seana Smith
How much should investors read into the Oracle’s moves?
00:50 Adam Rozencwajg
Well, I don’t read anything into it and that’s not to take anything away from the great Mr. Buffett. But we’re very different type investors. He tends to be much more slow and steady growth and, uh, with a much bigger tilt towards, uh, value. I mean, you look at at the names that he has classically owned. You’re like a Coca-Cola or a Gillette or on and on.
01:22 Adam Rozencwajg
I mean, these are big chunky names. They’re not the young, uh, exciting AI startup companies. Um, they’re not, uh, power generators. Uh, they’re not companies that are changing the world, uh, with new technologies. Um, there’s very little that’s, um, even internet related or cloud related. I mean, it’s it’s it’s the stuff that is just Americana. And so I think what he’s really saying is there’s not a lot of value in Americana, traditional Americana and the way he likes to invest. So he’s holding cash. Fine. He’s looking at Japan. Um, I don’t look at Japan. I run the Bullseye American Ingenuity Fund. That’s exclusively by definition in the US. So I won’t look at China. I won’t look at Japan. I won’t look at Europe, anything. But he is and I respect him for doing that. Um, so to your question, do do I put a lot of credence or concern into the fact that Mr. Buffett is holding a lot of cash? No, I don’t. His style is very different from mine.
02:47 Seana Smith
And it sounds like the theme in your investment style that I’m learning too is that you’re not concerned about any of these indicators that people should be holding onto more cash that we’re heading towards recession. If you are looking at the fundamentals of a company for the long term, in your view they will be able to withstand any of that macro pressure.
03:11 Adam Rozencwajg
Correct. And there’ve been some nasty pullbacks. I remember a few years ago was buying, well, not that many years ago. What about three? It was in 2022, what a miserable year that was for all of us. Um, and and Facebook, if you remember, or meta, if you prefer, went down to 82 bucks. I started buying it at 150 and I bought it all the way down. Actually, I did buy some in the 80s. People thought it was crazy. They said, “You’re buying this thing down 50%.” I said, “Well, but it’s meta. And at this point, if they just cut back on all this money they’re spending on the metaverse, whatever that is, um, we’re going to see earnings double and suddenly it’s trading at eight times earnings. That’s crazy.” Well, the rest is history. It’s now 600 bucks. You have to be willing, yeah, you have to be willing to buy stocks on pullbacks if you’ve done the work and the thesis is still valid. I think that is incredibly important. And so I I tend to look past a lot of the, um, the volatility. And here’s another thing, Madison, that I don’t think a lot of people focus on, but it might be worth, um, elevating or shining a spotlight on for for our viewers. And that is right now, corporate bond spreads are the tightest they’ve ever been.
05:02 Seana Smith
Yeah.
05:03 Adam Rozencwajg
In other words, a corporate bond spread is the difference between what, um, a corporation is able to borrow money at and what the federal government is able to borrow money at. And when that spread is very narrow, the risk premium, by definition, is very low. In other words, investors are not worried about, uh, uh, corporate America. They’re saying, fine, I only get 50 more basis points, half a point, then I do if I buy a US government. Fine, I don’t care. I want to own the, um, the government bonds and I’m I’m thrilled to get the extra half a point.
05:53 Adam Rozencwajg
If corporate, or I should say, if bond investors were worried about the state of the economy, they would expect a lot more incremental return above Treasuries for those corporate bonds. And they’re doing the opposite. They’re saying they’re happy to own here. So I look at the market, that aspect of the market, and I say, yeah, why should I be worried if if all of the bond investors in the world are not worried about corporate America, why should I be? That gives me some added confidence to go in and buy these down 10, 15% market dips.
