Warren Buffett on Position Sizing

Buffett opened the 2022 annual meeting against the backdrop of a first quarter in which Berkshire had deployed approximately $51 billion of cash into the equity market, including the disclosure of a 14.6 percent stake in Occidental Petroleum and the material build-out of the Chevron position to approximately $26 billion. Buffett and Munger told shareholders that the energy sector deployments reflected the underlying unit economics of the Permian unconventional resource base and the discipline of the Chevron capital allocation framework, and that the Occidental stake reflected the structural value of the underlying Permian resource base plus the optionality on the preferred shares acquired in 2019. Buffett walked shareholders through the partial reduction in the BYD position, indicating that Berkshire had sold approximately 5 million BYD H-shares during August at approximately HK$277 per share, while continuing to hold the bulk of the 225 million shares acquired in 2008. He framed the partial reduction as the natural outcome of position-size discipline after a position that had grown from the original $232 million cost basis to a market value in the multiple billions of dollars, while continuing to express admiration for the BYD management and the long-term trajectory of the Chinese EV industry. Munger, who had championed the original BYD investment, declined to add detail beyond defending the underlying franchise. On the Q&A, shareholders pressed on whether the energy sector deployments represented a fundamental shift in Berkshire's sectoral concentration. Buffett responded that the deployments reflected the underlying unit economics and the capital allocation discipline of the specific companies rather than a thematic bet on the energy sector, and that the long-term equity portfolio continued to be anchored on the consumer brand and the financial services franchises that had defined it for decades. Munger added that the energy sector was one of the few sectors where the underlying business economics and the capital allocation discipline of the specific companies were both attractive at the prevailing prices. The meeting closed with Buffett and Munger reiterating the long-term framework of compounding intrinsic value per share, anchored on the insurance float, the wholly-owned operating businesses, the concentrated long-term equity portfolio and the willingness to deploy large amounts of capital rapidly when the market presented attractive opportunities.