Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

WHEN Warren Buffett talks, the investing world listens - even aged 91 the ‘Sage of Omaha’ is still many people’s idea of the consummate investor.

Some 40,000 of his biggest fans gathered this month at the annual shareholder meeting of Berkshire Hathaway, the conglomerate of which Buffett is chairman and chief executive, to hear his latest thoughts. The event is more like an overgrown town fete than a financial meeting but Buffett’s centrepiece Q&A session, held alongside long-time partner Charlie Munger (aged 98!), is taken very seriously by both the audience and the wider investing world.

This year, the dominant theme was inflation - and Buffett was typically straightforward in his assessment of the threat it now poses. “Inflation swindles the bond investor… it swindles the person who keeps their cash under their mattress, it swindles almost everybody”, he said.

Thankfully, investors were also given a Buffett blueprint for beating inflation - or at least of giving yourself a chance of beating it - via the stock market. And it wasn’t only words of wisdom - Buffett has been busy putting his money where his mouth is with a huge $41.5bn buying spree at Berkshire Hathaway this year.

The fact that he is buying now in itself tells us something. It is not simply that stock markets have fallen and created an attractive buying opportunity - other recent opportunities have come and gone while Buffett sat on his hands, notably at the start of the pandemic in 2020. The difference this time is that inflation has created a much greater risk of standing on the side-lines because the real value of cash is falling so quickly.

The stock market offers the chance to buy a slice of productive assets that can retain their real value of the long term.

Here’s how Buffett has been taking on inflation.

Oil, gas and petroleum

Given that one of the biggest causes of inflation has been soaring energy prices, a stake in the companies whose profits are boosted from those high prices makes sense.

Berkshire Hathaway was already a shareholder in Chevron, the oil and gas multi-national, but the first quarter of 2022 saw it grow its stake from $4.5bn to a massive $26bn. Chevron is now Berkshire’s fourth largest holding. Alongside Chevron, Occidental Petroleum was another Berkshire purchase within the energy sector.

What’s particularly noteworthy about the Chevron addition is that it is one of the few large US companies that hasn’t seen stock price falls this year. In fact, the shares hit all-time highs in the first quarter. That perhaps shows Buffett’s confidence that high energy prices are here to stay.

Beyond that, Chevron boasts a 3.5% dividend yield - helping mitigate the erosive effects of inflation - and a program to buy-back its shares - a process that reduces the number of shares on the market and boosts the value for existing shareholders.

Technology (that rewards shareholders)

Buffett has been hesitant to jump into the current generation of mega-cap technology companies on the ground of their high valuations and sometimes uncertain profitability. His view has changed somewhat as the largest tech giants have matured and, most notably, he has been a significant buyer of Apple.

Berkshire added to its already massive holding in Apple this year, buying $600m of additional shares. As with Chevron, Apple is able to boast an impressive program for rewarding shareholders beyond just the prospects of share price growth. It pays a modest 0.6% dividend yield but has also authorised a $90billion share buy-back program.

Another purchase from the technology sector has been HPQ - the Hewlett-Packard Company - with Berkshire Hathaway taking a 11.4% stake in the company last month. Once again it was the prospects for reliable shareholder returns via both dividends and buybacks that proved attractive. HPQ scores particularly well on a measure called ‘free cash-flow’ - which roughly translates to it creating lots of ready cash which has the potential to be used to increase rewards further in the future.

Avoiding Bitcoin

It’s fair to say that the biggest headlines to come from this year’s shareholder meeting concerned Buffett’s scathing remarks about Bitcoin. It wasn’t that Buffett thought Bitcoin would fall in value, rather that he could not see the investment case for it.

He explained that: “Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything... It’s got a magic to it and people have attached magic to lots of things."

To drive home his point, he compared Bitcoin to assets that can offer a tangible product for those who own it.

“If you said … for a 1% interest in all the farmland in the United States, pay our group $25bn, I’ll write you a check this afternoon,” Buffett said. “For $25bn I now own 1% of the farmland. If you offer me 1% of all the apartment houses in the country and you want another $25bn, I’ll write you a check, it’s very simple. Now if you told me you own all of the Bitcoin in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rent and the farms are going to produce food.”

Safe to say, he’s not a fan.

Buying Berkshire?

One other notable purchase being made by Berkshire Hathaway recently has been… Berkshire Hathaway. The company has been buying back its own shares this year - perhaps explaining how the company has managed to grow it’s share price by 3.4% while the S&P 500 in which it sits has fallen by 16.6%.

Investors in Berkshire Hathaway haven’t always enjoyed a market-beating return. The conglomerate has lagged behind the index at times but it has always had the potential to recover strongly, particularly when the market turns more bearish.

The huge cash-pile built up within the company means it can deploy money into the market at opportune moments and improve its returns profile in the process.

That’s providing the case at the moment, and it may just be that today’s painful inflationary environment - however painful it is - may provide the Sage of Omaha with one more heyday.

What is inflation?

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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