As we navigate through the second fiscal quarter of the year, here at Parkview Capital, we're keeping a close eye on the newest market and economic developments.
A Postcard from Omaha
I had the wonderful opportunity to attend the Berkshire Hathaway annual meeting in Omaha this year. As you may know, our Parkview portfolios hold Berkshire Hathaway stock. It was the first time I’ve made the pilgrimage to hear from Warren Buffett whom I admire very much. The trip was even more special because my son (and fellow Berkshire shareholder) accompanied me.
The weekend of the annual meeting is a festive occasion punctuated with the wit, wisdom, and sage advice of one of the world’s most successful investors, dubbed “the Oracle of Omaha.” It is remarkable how dedicated and reverent his shareholders are, arriving at the event pre-dawn and filling to capacity the 18,000 seat CHI Health Center arena. After hearing the 93-year-old Warren Buffett speak, it is clear why – he is sharp, candid, charming and dedicated to investing with integrity and doing the right thing for his shareholders. I had a chance to chat with early Berkshire Hathaway investors who attended the shareholder meeting back when it was a few people in the local Holiday Inn – I was not surprised to learn that then as now Warren Buffett has always honored the best interests of his clients.
The meeting opened with a tribute to Charlie Munger, Warren’s longtime business partner and friend who died last year at age 99. During the meeting, Warren echoed what he said in his most recent letter, that Charlie was the architect behind Berkshire and Warren the general contractor. It was clear that from the podium to the attendees, Charlie is dearly missed.
I also visited the convention hall filled with displays, staff, and products from the many private companies that are owned by Berkshire Hathaway. Berkshire invests in companies not publicly traded on the stock exchange including everything from NetJets and Burlington Northern Railroad to the Pampered Chef. As my son Jackson remarked, “it’s nice to know we have a stake in planes, trains, air fryers and Squishmallows.” (If you don’t have an 8-year-old in your life, Squishmallows, are a round stuffed toy with more than 1,000 characters, and they’ve become a hot pop culture phenomenon. Once again Warren Buffett is ahead of the curve.)
A few key takeaways from the meeting:
First, the succession plan is clear for when it is needed. Greg Abel, who has been with Berkshire since 1999 and currently Vice Chairman of Non-Insurance Operations, will become CEO and in charge of capital allocation. Warren has great faith that Greg will do a terrific job and will carry on the Berkshire culture.
Second, their insurance business has been lagging, but with improvements in dynamic pricing and Berkshire’s recent investment in Chubb, cash flow should increase, adding to their reserves. Similarly, there are challenges in the utility business, but as Greg Abel pointed out, there remains tremendous opportunity.
Finally, Berkshire is built to endure. The company has a solid balance sheet, is sound and well positioned to take advantage of opportunities as they arise.
I got so much out of the experience, and I would encourage anyone to attend a future shareholder meeting. I would be happy to answer questions and assist in securing your shareholder credentials.
Corporate Earnings Roundup
Earnings for the first quarter of 2024 exceeded expectations, and projections for Q2 earnings have been on the rise since early April — contrary to the usual historical trend. Specifically, Q2 earnings for the S&P 500 are anticipated to increase by 9.2% compared to the same period last year, surpassing the 8.7% growth forecasted at the end of March. Consumers displayed surprising resilience during the quarter amid persistent inflation. Corporate earnings grew and profit margins remained steady.
With the first quarter earnings season over, and the news on the profit front being mostly positive, stocks remain close to all-time highs. Looking ahead, the focus of the market will most likely shift from individual company news to readings on the state of the economy and anticipated actions of the Federal Reserve. This focus will most likely generate market volatility. I believe our portfolios are well positioned to weather these fluctuations and perhaps provide moments of opportunity.
Interest Rates
“Higher for longer.” That seems to be the mantra and message communicated by Federal Reserve officials, Fed-watchers and pundits. The financial markets appear to have taken current interest levels into account, and though presupposed rate cuts may be delayed, stability in rates is certainly welcome for all market participants. A beneficiary of relatively high domestic interest rates is the U.S. dollar which continues to remain strong. The strong dollar helps companies that import raw materials and goods and is positive for U.S. consumer.
A.I.
Whether Artificial Intelligence (A.I.) is seen merely as a catalyst for growth in productivity or as the advent of a whole new industrial revolution, the application and impact of artificial intelligence technology has barely begun. We will see its impact in business and in the economy. At Parkview, we have a few select “pure plays” in A.I. technology, but well beyond that we’ve taken more of a “picks and shovels approach,” by investing in companies that are sellers, suppliers and enablers to advance and apply A.I. By purchasing stocks that provide the goods, services or technology needed for A.I. we gain exposure to the industry with lower risk.
Conclusion
I am cautiously optimistic about the growth and resilience of the American economy in general and for the long term, and, inspired by the example of Warren Buffett, I continue to look for good, high-quality companies for investment, specifically those with a strong track record of growth in revenues and earnings per share, and competitive returns on capital.
Thank you for the trust you place in me and Parkview.
With sincere regards,
David W. Malmgren, CFA
Founder and Principal
Parkview Capital
The information contained herein should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions that we make in the future will be profitable. The opinions stated and strategies discussed in this commentary are subject to change at any time.
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