Warren Buffett’s Berkshire Hathaway is at an all-time high. Is that a sign of what investors want right now?
As Berkshire Hathaway hits a peak, it could be a sign that investors are looking for some old-fashioned American certainty in their bets.
Shares of Berkshire Hathaway, the insurance-company-slash-holding-company-slash-investment-vehicle that Warren Buffett has led since 1965, closed at a record high of more than $747,000 on Monday, and is flat midday Tuesday.
The latest increase for Berkshire followed the record quarterly and annual profit the company reported Saturday. Just for funsies: Berkshire stock is up 1.08 million percent — not a typo — since September of 1976, the first trading data available through FactSet.
According to the investing principles Buffett has adhered to for the better part of a century, this is precisely how things are supposed to work. Share prices should be a reflection of the profit-producing power of actual companies. Under this ethos, known as value investing, the basic goal of investors is to try to buy stocks that are undervalued relative to the profits they should reasonably be expected to generate.
Those so-called value stocks had largely underperformed since the election, as investors have flocked to growth stocks, which carry high price-to-earnings multiples. That suggested the market was extremely excited about companies for reasons that weren’t immediately showing up in their profit estimates published by Wall Street analysts.
To be sure, Wall Street analysts aren’t always right. Sometimes, investors see things spreadsheet-wielding Wall Street wonks don’t. (For instance, Palantir, which is insanely overvalued according to traditional metrics, posted off-the-charts earnings that sent the shares sharply higher.)
We’ve argued that some of the best-performing shares of the post-election period, including Palantir and Tesla, have cozy political and financial ties to Trump world, suggesting that the market was pricing in some sort of business benefit from the new administration.
While the specific nature of such benefits are never clearly spelled out — favorable regulatory actions? Easing antitrust hurdles to mergers? Preference for juicy federal contracts? — Wall Street often has trouble incorporating murky to corrupt relationships into their analytical models.
But things seem to have shifted a bit lately.
In recent days, as the Trump administration has shown just how willing it is to break with the conventions and government behavior that have underwritten American prosperity since 1945, the market seems to have gotten a bit less sanguine about buying stocks and shares of companies with close links to Trump. (Palantir, again a case in point, has taken a beating.)
Instead, investors are looking for some good old-fashioned certainty about America in their investments. Consumer staple stocks have leapt to become the best-performing of the S&P 500’s 11 sectors, rising more than 8% this year. Hershey, Yum! Brands, Hasbro, T-Mobile, AT&T, and Oreo maker Mondelez are some of the best-performing stocks in February.
So it seems like a sign of the times that Buffett’s conglomerate — which has long-standing bets on such tried and true American staples as Coca-Cola, Kraft Heinz, and See’s Candies — has overtaken Trump agent Elon Musk’s Tesla in market value in recent days, as the market seems to be reassessing the speculative and political frenzy that has set in since November.
