Warren Buffett bought stocks in Q1, predicted banking woes: takeaways

• Warren Buffett piled about $4 billion into stocks in the first quarter, he revealed this week.
• The investor spoke about banks, bitcoin, Apple, Paramount, inflation, recession, and interest rates.
• Here are eight key insights from Buffett’s recent interview.

Warren Buffett piled about $4 billion into stocks in the first quarter, he revealed in a rare interview with CNBC on Wednesday.

The famed investor disclosed that Berkshire Hathaway’s government bonds are now yielding $5 billion a year. Moreover, he sold a bunch of bank stocks in recent years because he saw trouble brewing in the sector, he said.

Berkshire’s CEO also shed light on his company’s integration of Alleghany, and warned inflation and recession are serious threats that shouldn’t be taken lightly. He touted Apple’s indispensable products, compared bitcoin to playing roulette, and hinted that he’s soured on Paramount Global as well.

Here are eight key takeaways from Buffett’s interview this week:

1. Carving up Alleghany

Shortly after acquiring Alleghany last year, Berkshire sold all the stocks in the insurer’s portfolio except Apple and Berkshire, Buffett said. That suggests he dumped Alleghany’s stakes in the likes of Amazon, Alphabet, JPMorgan, Microsoft, Visa, and Wells Fargo.

Ajit Jain, the boss of Berkshire’s insurance operations, took control of Alleghany’s main insurance business, Buffett said. Greg Abel, Berkshire’s head of non-insurance operations, has taken charge of Alleghany’s other subsidiaries, which include steel and real estate companies.

2. Stocks, cash, and Treasurys

Berkshire spent roughly $4 billion on stocks in the first quarter, Buffett said. The conglomerate spent an average of $17 billion on stocks per quarter in 2022, or $8.5 billion on a net basis.

Buffett noted the surge in interest rates over the past year has boosted Berkshire’s income from its Treasury bills. It now earns around $5 billion or an almost 5% annual return, up from $40 million when rates were virtually zero.

“Buffett is earning crazy money from his Treasury bills,” Tesla CEO Elon Musk tweeted on Wednesday.

Moreover, Buffett estimated that Berkshire generates about $100 million each working day, giving the investor plenty of cash to put to work inside and outside of his company.

3. Bank stocks and failures

Buffett has exited positions in several banks over the past few years. He dumped them because he spotted red flags in their financials, and feared they would run into problems, he revealed.

“I did think that banking could get in a lot of trouble just because of the kind of things that they did,” he noted. “I didn’t like the banking business as well as I did before.”

Buffett accused several banks of using deceptive accounting to flatter their profits, and forgetting basic banking principles such as not borrowing short and buying long. Moreover, he called for heavier punishments for bank CEOs who make big mistakes.

“I would suggest that anybody that’s CEO of a bank that screws up and costs shareholders a lot of money, they get no pension from the bank,” he said. “There’s got to be consequences to the people who make the decisions and penalize the shareholders later on by having billions of dollars’ worth of fines paid to the government.”

The investor expects more lenders to collapse, but said he would bet $1 million that no American depositors would lose money in bank failures over the next year. He invited someone to match his wager, and said the combined $2 million would be donated to a charity of the winner’s choice.

4. Inflation, recession, and rates

Both inflation and recession can “cause a lot of trouble,” Buffett said, noting that surging prices hurt ordinary people, and recessions can morph into prolonged depressions.

The 92-year-old investor warned the economic backdrop has worsened in recent months.

“It’s a tougher world out there in a great many businesses,” he said, noting that most of the bosses of Berkshire subsidiaries didn’t expect conditions to deteriorate so quickly.

Buffett also suggested that interest rates, which the Federal Reserve has hiked from virtually zero to upwards of 4.75% over the past year or so, threaten to weigh on stocks and house prices.

The availability of much larger bond yields today “changes the value of real estate, changes the value of equities,” he said.

5. Apple’s appeal

Buffett emphasized the immense value of Apple’s products to its customers, and how indispensable devices like the iPhone are to them.

The Berkshire chief asserted that most people, if you offered them $10,000 to give up the iPhone forever, would refuse. In contrast, they would swap a Ford for a Chevy in a heartbeat, he said.

“It’s an incredibly valuable utility,” he said. “We’ll never own a business that makes so many people happier.”

6. Bitcoin betting

The bitcoin boom has been fueled by people’s love of gambling, desire to get rich fast, and fear of missing out, Buffett said.

The investor described bitcoin as a “gambling token” with no intrinsic value. He compared it to playing a roulette wheel with terrible odds, and likened the massive hype around crypto winners to slot machines making a lot of noise when they pay out — both are designed to get people excited to spend money.

7. Second thoughts about Paramount?

Berkshire, which steadily built a sizeable stake in Paramount Global last year, may have soured on the entertainment giant.

Buffett was asked about the investment, and laid out several reasons why he’s no fan of the movie industry. He described streaming as “not really a very good business,” and said attracting subscribers comes at a “terrible price.” He also noted that shareholders of Hollywood companies have rarely done well, and Paramount has to contend with deep-pocketed rivals that won’t quit.

When the investor was asked why Berkshire bet on the company, he replied, “Well, we’ll see what happens.”

8. Doubling down on Japan

Berkshire revealed roughly 5% stakes in Itochu, Marubeni, Mitsui, Mitsubishi, and Sumitomo in August 2020. It has now raised its ownership to about 7.4% in each of Japan’s five largest trading houses, Buffett said.

The five stakes are worth about $15 billion combined, a Markets Insider analysis shows. Buffett noted that Berkshire has more money invested in Japanese equities than any other country bar the US.