He did nothing.
Warren Buffett, CEO of Berkshire Hathaway and the world’s second-richest man, added $11.8 billion to his fortune in 2016, according to Bloomberg. Forbes estimates his gain was closer to $12.3 billion this year.
Shares of Berkshire Hathaway (BRK-A), of which Buffett is the largest shareholder, are up about 23% in 2016. The S&P 500 is up about 10%. Berkshire’s gains have been powered, in part, by the huge rally seen in bank stocks following Donald Trump’s election win.
Not bad for someone who very publicly opposed Donald Trump and endorsed Hillary Clinton.
Berkshire owns about 11 million shares of Goldman Sachs, is the largest shareholder of Wells Fargo, owns over 100 million shares of U.S. Bancorp, holds the right to purchase 700 million shares of Bank of America before September 2021, and is the largest component of the S&P 500 financials sector.
As a group, S&P 500 financials have gained about 22% this year, far better than the S&P 500’s roughly 10% gain. And while the market reaction to Trump may surprise Buffett — many expected markets to tank were Trump to be elected — the outcome of the election didn’t seem likely to change the Berkshire approach one way or another.
Of course, like most any institutional investing operation Berkshire made some minor tweaks to its holdings throughout the year. But the core of Berkshire’s portfolio did not change, is not likely to change, and is the cornerstone of why the company has benefited so much from the post-election rally.
When asked at the 2016 Berkshire Hathaway annual meeting whether Buffett was concerned about a Trump presidency, the short answer was, “No.”
“Government, you know, is a very big factor in our business and in all businesses,” Buffett said in April.
“I mean, there’s the very broad policies that affect practically everybody. And sometimes there can be some pretty specific policies. But I will predict that if either Donald Trump or Hillary Clinton is elected president — and one of them is very likely to be — I think Berkshire will continue to do fine.”
So far it seems this has been something of an understatement. And Buffett’s personal and political disappointment has clearly not prevented him from reaping the gains of a Trump-induced market rally.
Buffett’s newfound riches are about more than Trump
Insurance companies like Berkshire Hathaway are likely to benefit from higher interest rates seen since Trump’s election. And Berkshire, like most companies, should also be a major beneficiary of lower corporate taxes. But while the composition of Berkshire Hathaway’s businesses and portfolio holdings are the specific reason Buffett has been a beneficiary of the Trump rally, it is his broader, long-term investing approach that set the groundwork to enjoy this success.
“Value investing” has become a sort of catch-all to describe a Buffett-inspired aim at buying businesses the market is undervaluing and then patiently waiting for your view to be realized. But most simply, Buffett’s investing approach has been and remains the purchase of fantastic businesses and reasonable prices (as opposed to merely reasonable businesses and fantastic prices).
Under this framework, Buffett expects to make use of the only real advantage any investor can reliably give themselves over the market and their peers: time.
“Investors who diversify widely and simply sit tight with their holdings are certain to prosper: In America, gains from winning investments have always far more than offset the losses from clunkers,” Buffett wrote in his most recent letter to shareholders.
But what this worldview doesn’t specify is what challenges will arise along the way to this more prosperous future. And this is why our investing lesson of 2016 was to simply stay invested through the unnerving market chaos that can break out along the way.
One would expect Buffett to see the Trump years as a potential challenge for many Americans, whether it be politically, economically, or emotionally.
A long-term investment horizon and a sound, disciplined approach, however, is what allows Buffett to benefit from the unexpected market rally that followed Trump’s surprise election win. An approach that called for Buffett to do precisely nothing following the election.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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