Why Is Warren Buffett Buying S&P 500 ETF’s

In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss some reasons why Warren Buffett may be buying S&P 500 ETF’s. Here’s an excerpt from the episode:

Tobias Carlisle:
Lets get on the… So first topic off the bat today, everybody’s gone through the latest 13F of Berkshire. They’ve seen it and he’s got a big holding in Biogen, which some smart guys got there first. But more importantly, he’s also got 24 million which is like the interest that they earned before lunch on the cash pile. They’ve bought Spy, which is the index, the ETF of the S&P 500. What is going on?

Jake Taylor:
No idea. It’s hard to imagine that with that size of the bet that that’s Buffet, but also it makes no sense as a bet for Todd and Ted with the way that they’re compensated, which is any alpha above Spy. So would you put in your tracker within your portfolio if you were trying to outperform it? Like you’re just basically guaranteed to get it? I don’t know. That doesn’t make any sense to me at this point.

Bill Brewster:
Yeah, I don’t know how big he would like to go when he… I mean, he’s a guy that swings when he swings, but maybe he’s doing this as like a little, what do they call them? Easter eggs and the video game where it’s like this is how things are going to start to go. He has been asked for a long time about keeping cash in an Index. He has said in the past that might be a really smart strategy. I have wondered why he doesn’t have more in an Index over the past years. Some of that’s resulting, I guess, but at some point that entity is so big. Getting some levered ETF exposure maybe isn’t the worst idea for them.

Tobias Carlisle:
But doesn’t that create the problem that the time you’ve been saving this cash up, waiting for the opportunity to deploy it when the market gets cut in half. How does it help you to have your cash cut in half at the time that the market gets cut in half?

Bill Brewster:
I don’t know that that’s really what he’s doing. I think he’s waiting for the elephant and I guess he had one apparently that was in the sniper sites or whatever two Decembers ago.

Tobias Carlisle:
Tesla probably just got too expensive.

Bill Brewster:
Yeah, definitely probably.

Jake Taylor:
Makes sense.

Bill Brewster:
Well, you want to own the utility grid and all the cars, right? So obviously yeah, yeah, that’s right.

Tobias Carlisle:
The future.

Jake Taylor:
The math checks out there.

Bill Brewster:
Yeah. That checks out what you are-

Tobias Carlisle:
You got to earn that stuff to get a mark… the stage.

Bill Brewster:
But maybe the size of the deal that he was working on sort of told them hoarding cash above this number just doesn’t make sense then buy your own shares, buy them.

Tobias Carlisle:
There we go. That’s a better idea.

Jake Taylor:
Berkshire has always, in my mind been sort of a supercharged S&P 500 better on America, better cap allocation than average. Probably better patients than average.

Tobias Carlisle:
Better return on invested capital than the average company and currently available at a cheaper price. So why would you buy a second rate version of yourself when you can buy your stock back?

Bill Brewster:
Maybe he thinks he’s so good as second rate version of himself is pretty good.

Tobias Carlisle:
So I got a couple of… But he’s got access to the first rate one and he knows it even better.

Bill Brewster:
That’s right. So I don’t know.

Tobias Carlisle:
Do you want to hear my conspiracy theories?

Jake Taylor:
Yes, please.

Tobias Carlisle:
Okay. This is not so much a conspiracy theory-

Bill Brewster:
Do you want me to get the hat, the tinfoil one?

Tobias Carlisle:
Tinfoil on for these for this one.

Bill Brewster:
I’m already aware of them.

Tobias Carlisle:
So the first one is not so much a conspiracy theory, but it’s just like, it’s a balancing… They’ve got some sort of derivative exposure somehow and they need to have a balancing-

Jake Taylor:
Some hedge.

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