Chief Investment Strategist, The Freeport Society
How did Warren Buffett get so rich?
It’s impossible to know. Millions upon millions of words in books, documentaries, articles, and newsletters have failed to answer that question.
Even Buffett’s own explanations for his wealth are, at times, contradictory.
But what I do know is how he didn’t go about generating hefty, consistent returns decade after decade.
Buffett didn’t become the Oracle of Omaha through the hogwash known as “ESG investing.” He didn’t limit himself to companies that score highly on environmental, societal responsibility, and governance – ESG – metrics set by people who couldn’t analyze a balance sheet if their children’s lives depended on it.
He did buy the shares of companies that score highly on revenue, income, and cashflow metrics set by, well, the laws of capitalism.
Even as a proud liberal Democrat, Buffett admits ESG investing is “asinine.”
He’s right! ESG investing is asinine.
ESG shuts out of some of the top-performing equities in the market. The pensions, 401(k)s, and mutual funds through which most Americans are invested won’t touch stocks “blacklisted” by the ESG mob.
Meanwhile, companies hobble themselves – often reducing their profits in the process – to stay on [the ESG mob’s] ESG’s good side… and stay in those 401(k)s and mutual funds.
Yet… yet!
According to a Bloomberg survey published last week, 89% of investors agree that “using [ESG] metrics is now mainstream.” And 85% of them think ESG leads to “better returns, resilient portfolios, and enhanced fundamental analysis.”
Corporate executives are similarly brainwashed. Eighty-four percent of them told Bloomberg that ESG helps them “shape a more robust corporate strategy.”
Have these people all gone mad?!
This anticapitalistic idea has become pervasive. Mindless mobs buy into the idea that companies should pursue these faddish goals.
They have forgotten – to mix my Texan and French – the doggone raison d’être for investing.
We invest to make money… not to make the world better. That’s what the nonprofit industrial complex is for.
So today, let’s dig some more into Buffett’s thoughts on this.
Then I’ll show you one way you can help yourself to some profits, without worrying about any ESG nonsense…
The Humble View
Warren Buffett takes the “novel” view that the purpose of a business is to make money for its owners. Forcing a company to do anything other than that is not only futile but also immoral, because it forces a value system on others.
The Oracle of Omaha takes it further. Despite being incredibly generous himself – he’s pledged to give the vast majority of his massive $118 billion fortune to charity – his Berkshire Hathway Inc. (BRK.A) is one of the few major corporations that makes absolutely no charitable contributions as a matter of principle.
“This is the shareholder’s money,” he explains. “Many corporate managers deplore governmental allocation of the taxpayer’s dollar, but embrace enthusiastically their own allocation of the shareholder’s dollar.”
Buffett is not so arrogant as to impose his view of “good” on the world.
He takes the humble view that his job is to make his investors wealthy. They can then use that wealth to change the world however they’d like.
Interestingly, Buffett isn’t against renewable energy. Berkshire Hathaway Energy generates 1,536 megawatts of solar power and 2,307 megawatts of wind power. But you’ll never hear him waxing on about how Berkshire Hathway is doing its part to fight climate change.
“We wouldn’t do [it] without the production tax credit we get,” he says.
In other words, he made the investments because they boosted his bottom line, not to boost his ESG bona fides.
He’s approaching the 2020s – a new age of chaos that promises to be one of the most dangerous, most exciting, most chaotic, most opportunity-filled periods in U.S. history – in a similar fashion.
He’s hoarding cash like it’s going out of style. Berkshire Hathaway had a record $157 billion in cash on its balance sheet as of its latest disclosure. To put that in perspective, that’s north of the GDP of Morocco.
A huge cash balance like that suggests Buffett is biding his time, waiting for a good investment opportunity to come along.
In the meantime, he’s been steadily adding to his positions in Occidental Petroleum Corp. (OXY) and some of America’s biggest homebuilding stocks.
24 Stocks to Ramp Up Your Pursuit of Wealth
Now, I never buy or recommend a stock simply because Warren Buffett (or any other investor) is buying it. That’s lazy analysis, and frankly, by the time we get word that some master of the universe has bought stock, they might already be selling it. We’re fighting an information lag.
That said, when I see news that Buffett is buying some of the same stocks I like, I take comfort. It’s validation that the greatest investor of all time saw the same thing I did.
In my brand-new free special report – The 24 Stocks for 2024: Life, Liberty, and the Pursuit of Wealth – I highlight one stock that, it just so happens, Buffett is a major shareholder of.
Plus, I highlight 23 more stocks that I believe will help free-thinking investors like you navigate not only 2024 – but also what promises to be one of the most dangerous, most chaotic, and most opportunity-filled decades in history.
And keep an eye out for future installments of The Freeport Navigator, our free email letter that will empower your financial and investment decisions day by day. This communiqué is not for the faint of heart. This is for free thinkers who crave life, liberty, and the pursuit of wealth.
To life, liberty, and the pursuit of wealth…