3 Smart Things Warren Buffett Is Doing Now

First, it was the pandemic, and now it’s the Ukraine-Russia conflict, rising interest rates and inflation. The stock market has faced lots of headwinds over the past few years, and especially the past few months.

From historic lows in 2020 to major highs in 2021 to correction territory lows in 2022, if you’re an investor feeling whiplash from the ups and downs of the market, you’re not alone.

In times like these, we look to arguably the most successful and well-known of investors, The Oracle of Omaha. So, what is Warren Buffett investing in now and what is he doing to protect his assets from market volatility? 

Buying Deals

If you think Buffett is taking a step back from the stock market given the current downturn, think again. Buffett and his team are continuing to buy stocks, but they’re being a bit more selective.

In the fourth quarter of 2021, Berkshire Hathaway bought seven stocks:

1. Liberty Sirius XM Group Series A 
2. Chevron
3. Floor & Decor Holdings
4. RH (formerly Restoration Hardware)
5. Activision Blizzard 
6. NU Holdings
7. Liberty Media Corporation

In 2022, Berkshire purchased nearly $1 billion worth of stock in Occidental Petroleum (OXY). Berkshire Hathaway now owns more than 13% of all OXY stock.

OXY receives the majority of its earnings from oil and gas — a smart investment given the recent surge in gas prices. But it doesn’t end there.

OXY’s chemicals segment also plays a pivotal role in the red-hot housing market. In 2021, the company reported its highest earnings in 30 years after generating $1.54 billion in segment operating income.

OXY’s chemicals segment,  OxyChem, manufacturers:

• Polyvinyl chloride (PVC), used to make plastic piping in building materials.
• Raw materials that are used in soaps, cleansers, and disinfectants.

Occidental Petroleum is also a leader in the carbon-capture technology space, which could allow the world to decarbonize while continuing to burn fossil fuels — an innovation that would be a complete game-changer.

In its earnings report for Q4 of 2021, OXY revealed plans and a schedule for construction for the company’s first direct air capture plant. The company says the plant will take one million tons of CO2 out of the air each year and sequester it. Construction of the plant is expected to begin in late 2022 and be ready for operation in 2024.

If all goes to plan, carbon capture could turn into a significant business for OXY as the globe focuses on mitigating the effects of global warming.

Of course, it’s a great time to cash in on Occidental as oil prices continue to skyrocket. In fact, management expects to generate $225 million each year for every $1-per-barrel oil price increase. That’s up quite significantly from the $66.14 per barrel that Occidental saw in 2021, when the company generated $4.1 billion in operating income. 

Now that oil prices have risen over $40 higher, OXY could generate as much as $9 billion in incremental profits.

Buying Firms with Durable Economic Advantages

In a recent letter to Berkshire Hathaway shareholders, Buffett wrote:

“…our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO….we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.”

So, as an investor, you should adopt the same mindset and look for businesses you truly believe in, with business models and products that are built to last. As he mentioned in his letter, the two things Buffett looks for are:

1. Businesses with “durable economic advantages”
2. Businesses with first-class CEOs

Those two quick statements are ones you can write down, recite, and/or memorize so you can pose them to yourself before you make any investment decisions. This will ensure you never buy stocks solely based on a recent price dip.

Building His Cash Pile

Buffett and his Berkshire Hathaway business partner Charlie Munger have a long-standing policy that their business conglomerate will always hold more than $30 billion in cash and cash equivalents.

What’s the reason for this?

The dynamic duo says they stockpile cash to allow Berkshire Hathaway to stay financially robust and never put the company in a position where it has to borrow money and rely on the generosity of others.

Currently, Berkshire Hathaway holds an astonishing $144 billion in cash. Something that Buffett may not be comfortable with in normal market conditions, but he believes is prudent given the current market.

Of course, the average Joe likely won’t be scraping together $30 billion + —or even $1 billion — anytime soon. But, you can still take Buffett’s advice to heart and start stockpiling an amount of cash that makes sense for you to withstand times of hardship and provide optionality to buy deals when they crop up.

In Buffett’s case, he takes lets the cash sit idle and invests it when valuations are compelling. The key point is, as Jesse Livermore famously once said, the money is made in the sitting. In other words, patience pays. Wait for the deals to come to you, the cycles always ebb and flow. When the time is right, and there’s red across the board as most stocks are in a downdraft and panic selling has taken over, the time to pounce is then. It will be hard but as Buffett advocates be greedy when others are fearful.

Final Thoughts 

Don’t worry. You don’t need to copy Warren Buffett’s moves 100% or invest billions of dollars in order to make smart stock market moves that will pay off great dividends in the future.

Simply being abreast of what The Oracle of Omaha is doing and buying and leveraging that information to make your own moves that make sense for your goals and portfolio can pay off greatly in the long run.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.