Did Warren Buffett Go Bargain Hunting During the Recent Market Meltdown?

Legendary investor Warren Buffett’s famous advice to investors is, “Be fearful when others are greedy, and greedy when others are fearful.”

Buffett has apparently also gone down this route with his company Berkshire Hathaway (BRK.A -2.47%) (BRK. B -2.63%) after buying more than $57 billion worth of stock in the first six months of the year.

Even though the market fell earlier this year, the S&P500 has traded at even lower levels in recent months, falling about 9.3% in September, with many stocks making new lows. Sharp rate hikes and fears of a deeper recession have unsettled investors.

In just over a month, Berkshire will file its 13F filing for the public to see what stocks the company bought and sold during the third quarter of the year, which spans July, August, and September. Have Buffett and Berkshire been bargain hunting during the market crisis? Let’s take a look.

what we know

We already know that Berkshire made some purchases in the third quarter of the year, as the company disclosed in a recent regulatory filing that it bought nearly six million shares of the major oil producer Western Petroleum.

Regulatory filings show that Berkshire spent more than $352 million on shares over the days Sept. 26-28. Berkshire has been buying Occidental throughout the year and owned about 20% of the company at the end of the second quarter. That percentage is likely much higher now, and Berkshire has permission to buy up to half of all of Occidental’s outstanding shares.

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But Occidental is certainly an underdog in today’s market. The stock is up an absurd 118% this year while the S&P 500 is in bear market territory. The price of oil has risen significantly this year due to the ongoing Russian invasion of Ukraine, as well as the accompanying sanctions on Russian oil, which have made major US oil and gas producers very valuable.

I don’t think that Berkshire’s purchase of Occidental necessarily means it will buy other stocks as aggressively given the unique position major oil producers currently find themselves in. There are also rumors that Berkshire is considering a direct acquisition of Occidental Petroleum.

However, many of Berkshire’s stock purchases earlier this year are now trading at lower levels than they were when the conglomerate bought them.

AAPL chart

AAPL data from YCharts.

Celanese Corp, General Motors, ally financeand Paramount Global are among the hardest-hit Buffett stocks this year. However, Buffett reduced his position at General Motors in the second quarter of the year.

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Has anything changed?

A lot has changed since the beginning of the year. For one, no one expected Federal Reserve interest rates to be as high as they are now, and according to the Fed’s median forecast, it could end the year another 1.4% higher at 4.4%.

In addition, the possibility of the Fed initiating a soft landing for the economy is now much less likely. Many investors believe that a much deeper recession in 2023 is now inevitable. With all of these macro headwinds, Buffett and Berkshire may be less interested in deploying capital — a majority of their purchases this year have come in the first quarter.

But remember, Buffett is a long-term and value-oriented investor, which means he likes to find stocks trading below their intrinsic value, and there are many ways to do that in today’s market. Buffett is also known for taking steps during tough economic times and typically buys stocks with long-term prospects — he’s previously said he wants to buy stocks he never has to sell.

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Interestingly, while Buffett bought shares during the second quarter, he didn’t buy any new shares, he simply added to existing positions.

I suspect we could see similar moves in the third quarter, because while the outlook has turned less favorable, I’m sure Buffett and Berkshire still have confidence in the stocks they had long bets on during the first quarter of the year. If the thesis is still intact, why not continue buying at cheaper levels?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Ally is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway (B shares), HP, and Markel. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares) and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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