Warren Buffett plowed $3 billion into General Electric at the height of the financial crisis.
The investor received $3 billion in preferred stock paying a 10% dividend, plus stock warrants.
Berkshire Hathaway made about a $1.5 billion profit. Buffett later said he could have made more.
Warren Buffett’s luck changed this year, allowing him to spend a record sum on stocks and end his deal drought. Here are his 6 highlights of 2022.
Warren Buffett spent a record sum on stocks and made a major acquisition in 2022.
The Berkshire Hathaway CEO tore into bitcoin, adjusted some overseas bets, and gave a surprise gift.
Here are the investing icon’s 6 highlights of 2022.
Warren Buffett’s luck changed in 2022. After years of battling to find bargains and watching Berkshire Hathaway‘s cash stack up, the famed investor seized his chance to put his conglomerate’s mountain of money to work.
Buffett spent a record sum on stocks, executed a major acquisition, and made some striking changes to his overseas bets. He also crowed about four of Berkshire’s key holdings in his yearly letter, trashed bitcoin at the annual shareholders’ meeting, and made a surprise donation to his children’s charities.
Here are Buffett’s 6 highlights from 2022:
The annual letter
Buffett published his famous annual letter to Berkshire shareholders in February.
The investor vented his frustration with Berkshire’s mammoth $144 billion cash pile, blaming a lack of bargains in the stock market. He also celebrated the “Four Giants” among Berkshire’s businesses: insurance, railroads, energy, and its enormous Apple stake.
Moreover, Buffett appeared to respond to criticism of his tax practices by noting Berkshire paid $3.3 billion of federal income tax in 2021 — nearly 1% of all the corporate income taxes collected by the US government that year.
Buffett struck a deal to buy Alleghany for nearly $12 billion in March. Berkshire completed its takeover of the insurer in October, ending a years-long drought on the acquisition front.
The investor showcased his trademark approach to dealmaking, which prizes trust and simplicity. He proposed the merger over dinner with Alleghany’s CEO, who previously ran a Berkshire subsidiary, and the pair formally announced a deal less than two weeks later.
Buffet also refused to budge on the deal terms, and when Alleghany enlisted Goldman Sachs as a financial advisor, he insisted the investment bank’s fee was subtracted from Berkshire’s offer price.
An epic buying spree
Berkshire plowed a net $41 billion into stocks in the first quarter of 2022, setting a new record for its quarterly spending on equities.
Buffett and his team built large stakes in HP, Chevron, Occidental Petroleum, Citigroup, Paramount, and Taiwan Semiconductor in the first nine months of 2022. Berkshire also spent over $5 billion on buybacks and made other sizeable purchases, lifting its spending on stocks and acquisitions for the year to an astounding $70 billion or so.
The annual meeting
Buffett hosted Berkshire’s annual shareholder meeting in his hometown of Omaha, Nebraska in April, after two years of virtual gatherings due to the pandemic.
The investor called out the reckless speculation in the stock market, underlined the grave threat posed by inflation, and declared he wouldn’t pay $25 for all the bitcoin in the world.
Buffett made some big moves in 2022 that deserve special attention. For example, he poured a total of about $30 billion into Chevron and Occidental, propelling the pair of oil-and-gas companies onto the list of Berkshire’s most-valuable holdings.
The investor and his team also revealed in November they had boosted their billion-dollar bets on Japan’s five largest trading houses.
In contrast, they sold BYD shares for the first time in 14 years. Berkshire has now slashed its position in the Chinese electric-vehicle maker by around 22%, and pocketed an estimated $1.2 billion profit from the disposals.
An unexpected gift
Buffett made his usual annual donation of Berkshire stock in June, dividing the $4 billion gift between the Bill & Melinda Gates Foundation and four of his family’s charities.
Unexpectedly, he contributed a further $759 million worth of Berkshire stock to his three children’s foundations for Thanksgiving, saying he was proud of their charitable work and wanted to show his appreciation.
7/7 SLIDES
Warren Buffett piled $3 billion into General Electric in October 2008, handing vital cash to the industrial titan just as credit markets seized up and global demand slumped. Here’s a look back at the storied investment.
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Weathering the storm
GE CEO Jeff Immelt had issued a profit warning in late September, citing “unprecedented weakness and volatility in the financial services markets.” The credit crunch was especially bad news for GE Capital, the group’s massive financing division that loaned money to consumers and businesses.
Immelt cut the dividend that GE Capital paid to headquarters, halted share buybacks, and put further borrowing plans on hold. He also moved up his goal to reduce GE’s reliance on financing profits to the end of 2009.
GE’s stock price had plunged by roughly a third since the start of 2008. However, its market capitalization was still more than $245 billion, making it the country’s second-most valuable public company after Exxon.
Faced with the monumental challenge of reshaping GE and riding out a brutal downturn, Immelt and his team decided they could use a “rainy-day fund” or a “backup to a backup,” The Wall Street Journal reported at the time.
The pair shook hands on Berkshire investing $3 billion in GE in exchange for preferred stock paying a 10% annual dividend. GE would be allowed to redeem the shares at a 10% premium after three years.
The investor also secured warrants enabling Berkshire to purchase 135 million of GE’s common shares for $22.25 each — close to its stock price at the time — at any point in the next five years.
“Insurance is expensive, especially when you buy it from Warren Buffett”
GE accepted Buffett’s terms because the famed investor provided more than money; his backing was also a vote of confidence in its future.
“GE is the symbol of American business to the world,” Buffett said in the press release announcing the deal. “I am confident that GE will continue to be successful in the years to come.”
Immelt added that Buffett’s cash, plus at least $12 billion from a public stock offering, would boost GE’s flexibility, help it execute its plans faster, and allow it to “play offense in this market should conditions allow.”
GE’s shareholders recognized Buffett’s money was a useful cushion for the company.
“It’s an insurance policy in case things get worse,” fund manager Wayne Titche told The Journal at the time. “In today’s market, better safe than sorry.”
However, they still balked at the high interest rate and bemoaned the dilution of existing investors’ shares.
“Insurance is expensive, especially when you buy it from Warren Buffett,” shareholder Arthur Rice told the newspaper.
Buffett trumpeted the GE deal, as well as similar bets on Goldman Sachs and Wrigley, in his 2008 letter to shareholders.
“We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory,” he said.
In all three cases, Berkshire acquired “substantial equity participation as a bonus,” he added.
Buffett raked in $1.5 billion — and could have made more
Berkshire received $3.3 billion when GE redeemed its preferred stock in October 2011, as well as $900 million in dividends in the intervening three years.
The pair also amended Berkshire’s warrants in 2013 to allow the conglomerate to exercise them without spending any cash. It received 10.7 million shares as a result, which it eventually sold them for about $315 million in 2017.
Between the $300 million premium, the dividends, and the proceeds from the share sales, Berkshire raked in about $1.5 billion in profit or a 50% return.
Moreover, Buffett revealed at Berkshire’s annual meeting in 2018 — almost a decade after the deal — that he could have driven a harder bargain, but cut GE some slack given the extraordinary circumstances.
“They were going to take the terms we offered,” he said, according to a transcript on Sentieo, a financial-research site.
“But we actually didn’t push it to the limit because there really wasn’t anybody else around.”
