A Message for Robinhood Investors From Warren Buffett’s Desk

The takeaway from Berkshire Hathaway’s results is that Warren Buffett isn’t desperate to buy stocks at any price — and perhaps the Robinhood crowd shouldn’t be, either.

The company’s earnings statement shows its cash war chest was almost $147b at the end of the second quarter, more than enough to buy all but 50 of the most valuable companies in the S&P 500. But that comes with a FY20 earnings per share estimate of almost $130 and a P/E of nearly 26x. Given those valuations and Berkshire’s track record of value investing, Buffett is unlikely to do anything foolish with his cash.

Even as the Fed’s swift actions spurred a lightning-fast recovery in the S&P, Berkshire Vice Chairman Charlie Munger said recently that the phone didn’t “ring off the hook” following the slump. That was unlike in the midst of the 2008 financial crisis, when Buffett agreed to invest in, among other companies, Goldman Sachs.

With the total return on Berkshire trailing the S&P this year, commentators are growing restless about what Buffett should be doing. The quarterly statement shows, however, that he isn’t about to abandon an approach that’s served him well through the decades. On top of his must-have list is a “sensible purchase price”, which would be an almost ridiculous ask at current S&P 500 valuations.

Stil Buffett and Berkshire failed to take advantage of the crisis. The market recovery was led by fast-growing companies such as Amazon, Tesla and Zoom Video, while Berkshire and other more traditional businesses were pushing water.

Source: Bloomberg Pro Terminal
Chart: Used with permission from Bloomberg Finance L.P.