Big tech and speculative meme stocks have had a rough start to the year, while Buffett’s portfolio is near an all-time high
But that’s not causing Berkshire Hathaway’s Warren Buffett to lose any sleep.
Banks, energy firms and other value stocks have rallied this year, which is great news for Buffett since the Oracle of Omaha’s conglomerate invests in many of these companies. Value stocks typically have lower price-to-earnings ratios, and they’re definitely not trendy.
It’s too soon to say whether the current market trends will hold. But value investors who showed patience are looking pretty good so far in 2022.
“Buffett’s the tortoise. Value investors just plod along,” said John Buckingham, a value stock fund portfolio manager at Kovitz. “Yes, the Portnoys and Cathie Woods will have their day. But so many view investing as a casino. The key is to be patient and accept volatility.”
Berkshire isn’t just an investing firm. It owns well-known companies ranging from battery maker Duracell and the Burlington Northern Santa Fe railroad to Dairy Queen, Fruit of the Loom and paint seller Benjamin Moore.
However, Berkshire is primarily a financial services firm thanks to the fact that it owns insurance giant Geico and several other companies in the industry.
“When investors gravitate towards value they will buy financial stocks and Buffett will get his share,” Buckingham said. “Berkshire is benefiting because higher interest rates help Buffett’s insurance business.”
All eyes on the BoE and ECB
Nearly two-thirds of the economists surveyed by Reuters are predicting that the central bank will boost rates another quarter of a percentage point, to 0.5%.
Many central banks in developed economies are expected to follow suit and start hiking rates later this year.
“They are all going to move gradually if they can. Central banks don’t need to be overly aggressive. It can be systematic,” said Anthony Saglimbene, global market strategist with Ameriprise Financial.
The one likely exception to the rule? The European Central Bank. The ECB also meets Thursday and is unlikely to raise rates. Its key refinancing rate is likely to remain at zero and will probably stay there for the foreseeable future.
ECB President Christine Lagarde is arguably the most dovish of the major central bank chiefs around the globe. She has argued that the ECB is unlikely to raise rates at any point in 2022 as the Covid pandemic remains a major economic challenge.
“The ECB will want to allow for more time before rate hikes,” Saglimbene said. “Growth is slower.”
Saglimbene noted that southern European countries still need super-low rates to boost their economies while EU powerhouse Germany is being impacted by a slower global trade and manufacturing environment.
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