Towards the end of last week, the Wall Street Journal published a rare interview withCharlie Munger (Trades, Portfolio), the vice-chairman of Berkshire Hathaway BRK.A BRK.B and Warren Buffett (Trades, Portfolio)'s right-hand man.
Contrary to what many analysts and Buffett-watchers have speculated over the past few weeks, these investment legends have not only not been taking advantage of the recent market declines to snap up bargains, they've been playing it safe.
According to the interview, when asked about Berkshire's approach in this market, Munger responded:
"We just want to get through the typhoon, and we'd rather come out of it with a whole lot of liquidity. We're not playing, 'Oh goody, goody, everything's going to hell, let's plunge 100% of the reserves [into buying businesses]....'
Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it. We're always going to be on the safe side. That doesn't mean we couldn't do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we'll emerge on the other side very strong."
The vice-chairman also explained that unlike in the last crisis, "the phone is not ringing off the hook" with companies looking to ask Buffett for financing. Although, he did go on to predict that when there's more certainty about what the future holds, companies might be more inclined to tap Buffett's accounts for cash.
Thoughts on Munger's comments
Munger's comments are interesting to me because they suggest that Berkshire is preparing for the worst. As I noted in an earlier article, the group could potentially face an existential threat in the form of business interruption insurance. With policymakers across the United States seeking to retroactively change business interruption insurance policies to make insurers pay out in the event of a pandemic, there's a good chance the industry could be on the hook for hundreds of billions of dollars in losses over the next 12 months if the Covid-19 crisis continues.
I don't want to put words in Buffett or Munger's mouths, so please note that this is entrely my own pesonal opinion: the group facing a "typhoon" seems to imply that Berkshire is worried about something big hitting the business. Munger also said in the interview that the group had closed some businesses and does not expect them to open up again.
Whatever the case is, the comments make it clear that both of these billionaires are worried about the current business environment. What's more, Munger's remarks seem to suggest that Buffett is, for perhaps the first time in his career, not willing to be greedy when others are fearful.
Waiting for clarity
Of course, we will have to wait and see if this is the case. Munger has a history of saying what he thinks, but neither he nor Buffett like to reveal too much about Berkshire's stock market activity, for obvious reasons. We should find out more about the portfolio when the conglomerate reports its first-quarter results, which are expected at the beginning of next month. It is also highly likely that the Oracle of Omaha will face questions about his activity in the recent market turmoil at the annual meeting, which is scheduled for next month.
Overall, Munger's comments are interesting because they illustrate quite clearly just how different the environment we face today is from anything we have seen before.
Buffett and Munger together have more than 140 years of experience investing. If they're not willing to make any big deals in the current market, then that could be a big warning to other investors.
Disclosure: The author owns shares in Berkshire Hathway.
Read more here:
- Seth Klarman Case Study: How to Value a Business
- Seth Klarman: Investors Should Not Rely on Book Value, EPS or Yield
- Seth Klarman's Advice on Portfolio Management
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