Rudi’s View: Buffett’s Parting Message

Array
(
    [0] => Array
        (
            [0] => ((RMD))
            [1] => ((TNE))
            [2] => ((CAR))
            [3] => ((GMG))
            [4] => ((PME))
            [5] => ((ALL))
            [6] => ((XRO))
            [7] => ((360))
            [8] => ((COH))
        )

    [1] => Array
        (
            [0] => RMD
            [1] => TNE
            [2] => CAR
            [3] => GMG
            [4] => PME
            [5] => ALL
            [6] => XRO
            [7] => 360
            [8] => COH
        )

)

This story features RESMED INC, and other companies.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Did Berkshire just buy exposure to AI? And why today's share market looks a lot like 2016.

By Rudi Filapek-Vandyck, Editor

Buffett’s Parting Message

By Rudi Filapek-Vandyck, Editor

Only a few more weeks to go before Warren Buffett (95) hands over the chief-executive responsibilities at Berkshire Hathaway to Greg Abel (63) as of 1st January 2026.

Buffett is staying involved as chairman of the board. His final episode as CEO includes one additional pivotal signal to all the fans and the broader, global investment community as Berkshire’s latest public filing revealed Alphabet (Google) has been elevated to a fresh top ten holding for the Berkshire US equities portfolio.

This signal is one of many indicators suggesting savvy investors are accumulating exposure to AI beneficiaries and technology companies, even if this is not yet apparent from related share prices on the ASX.

Another Wall Street legend, Stanley Druckenmiller’s Duquesne Family Office, has offloaded all equity in Nvidia, but increased exposure to AI hardware and chip infrastructure more broadly.

This strategy pivot is widely seen as Druckenmiller turning less comfortable with crowded trades, such as Nvidia, but staying the course on the 2020’s enduring megatrends.

In my humble opinion, the decision at Berkshire to purchase 17.8m shares worth US$4.3bn in Alphabet and make this new investment one of the largest in the equities portfolio sends an incredibly strong signal to the rest of the world.

Alphabet is part of the Magnificent Seven group of megacompanies that dominates indices in the US, its shares are up 46% year-to-date, and 218% over the past five years.

Equally important to highlight: throughout all the volatility and share market turmoil of late, the Alphabet share price has only weakened by circa -5% from its all-time record high, and that retreat only occurred very recently, so Berkshire has been purchasing on the relentless trend upwards.

Let’s not forget: Alphabet is not simply a happy participant in today’s AI technology development, this company is one of the crucial drivers behind AI’s global build-out and ongoing development.

The company is rolling out a “full-stack” AI strategy, including search, YouTube, Android, Google Cloud, custom chips and Gemini-branded foundation models. Investments include AI data centres and the acquisition of Windsurf, for AI-assisted coding.

Amidst all the angst and relentlessly repeated warnings about FOMO bubbles, over-valuations and likely sharp sell-offs awaiting US markets, what does this tell us about what Buffett & Co are thinking?

Time to roll out my absolute favourite observation covering the multiple decades past when Buffett and soulmate the late Charlie Munger would organise an annual ‘love’ fest for fans around the globe who would travel in large numbers to hear wise words spoken by both oracles at the AGM in Omaha, only to travel back home and then buy stocks in beaten-down, low-quality, micro-cap, hyper-cyclicals that neither Buffett or Munger would ever give two seconds of their attention.

Humans. We buy into a narrative and once we’re in, we never ever want to separate from it, no matter what.

In this particular case, it’s the myth that in order to emulate the most quoted and revered investor of our lifetime, we must concentrate our attention and portfolio allocations to the lowest priced assets on the market, no matter the specific reason or context.

Time to wake up. According to CNBC, Alphabet shares are trading on 27x times next year’s (forward-looking) EPS forecast. While this is significantly lower than the multiples enjoyed by Nvidia (40x), Microsoft (38x) and Amazon (37x), it also is above the market average of circa 24x (S&P500).

I am certain I have now shocked a few readers off their chair. While I would never consider myself an expert on Berkshire or the Buffett style of investing, this one thing I do know: it never is about simply buying into cheaply-priced assets.

Back in 2009, I equally shocked a few investors by explaining the acquisition of the Burlington Northern Santa Fe (BNSF) railroad operator occurred on a forward-looking PE of 21x.

Maybe that one famous quote from Charlie Munger explains it all:

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

I believe Buffett & Co have given us an insight into their thinking about equity bubble narratives and fears for a repeat of 1929-style of disasters.

Waiting For The Nasdaq Meltdown (Godot)

Nobody denies US markets are dominated by elevated valuations, but whether today’s share prices have more upside left or simply are biding their time before a reset lower will likely be determined by what’s on the horizon for 2026 and beyond.

In Australia, the prospect of a serious sell-off for US megacaps and technology stocks has been weighing on local share prices of quality growth and technology companies since mid-August.

Think ResMed ((RMD)) and TechnologyOne ((TNE)), but equally Car Group ((CAR)), Goodman Group ((GMG)) and Pro Medicus ((PME)).

Also remarkable: while financial result releases from the likes of Aristocrat Leisure ((ALL)), Xero ((XRO)) and Life360 ((360)) were by no means perfect, analysts (and shareholders, I assume) have been genuinely surprised by the extent of share price weakness that has ensued.

With notable exception of Life360, those share prices had already fallen quite the distance over the past three months.

But as everyone can observe daily: there’s no appetite to proverbially catch these falling knives.

Instead, and this might be an indication of the growing impact of retail traders and investors, market strategists at Macquarie observe the best performers on the local bourse are made up of loss-makers and valuation traps, i.e. low quality exposures.

We all know this is but a temporary phenomenon as such high risk propositions tend to generate poor returns over the long term.

All the while, Quality Compounders, which includes the companies I mentioned, cannot catch a sustainable bid despite being one of the best investment styles longer term.

What exactly is happening here? Macquarie calls it the Style Bizarro World, with the added prediction: this won’t last.

I wholeheartedly agree. The closest reference I can think of about what’s happening on the ASX post-August is the pivot that dominated the local share market in the closing quarter of 2016.

Back then, fund managers and market commentators generally had been whinging about ‘expensive defensives’ that would not lay down for months on end, until the market finally made that switch into resources, banks and other cyclicals — to the temporary detriment of the share prices that are equally feeling the pain this time around.

Open up a 10-year share price chart for, say, Cochlear ((COH)) and you can clearly see the dip in the second half of 2016.

It may not look like much given share prices for this type of companies have appreciated significantly since then, but as this was my first experience with significant portfolio switching out of prior Winners into share market laggards, I remember it well.

In simplistic generalised summary: shares of previous Winners went down by -15%-20% while those cheaply priced new heroes went up by similar percentages, creating a significant gap in relative performances.

Similar as the situation back then, I believe an important factor in this story is about market positioning and the abrupt changing of it.

The past three years have seen circa 40% of the local share market absorb all the positive momentum, while leaving those invested in the remaining 60% fuming and frustrated.

This automatically implies most portfolios are mostly positioned where all the action takes place.

Now enter the switch in momentum whereby money flows into the opposite direction.

Macquarie is absolutely right, this won’t last, but exactly when this momentum switch normalises, nobody genuinely knows.

It’s not as if there’s a register somewhere where fund managers declare whether or when they’ve finalised their re-allocations.

Back in 2016, general portfolio rotation really started snowballing post the August results season, as it did this time around, and it lasted until early into the following year.

The good news is those beaten-down quality growth share prices by then were once again ready to command their share of the ongoing bull market.

By later in 2017, share prices were higher than before, in some cases substantially higher.

Strategy Is A Personal Choice

How one responds to current market dynamics is entirely dependent on one’s own conviction and strategy, but if ever there is an opportunity to get set in some of the highest quality growth companies on the ASX at an attractive-looking entry point… do I need to finish that sentence?

Portfolio switching because the grass is temporarily greener in commodities and cyclicals in anticipation of better global growth momentum next year (and because of a misguided fear that everything technology is now forever in the doldrums) is not a reflection of fundamental valuations or future outlook for those Winners presently out of favour.

While share prices might have seemed a little too hot under the collar previously, with many share prices now down by -20%-30% (sometimes more) and in many cases still weakening, that argument belongs firmly into the past.

The key problem, as I see it, is share prices in Australia are very much priced for a Nasdaq meltdown that has not happened. The easiest scenario would be for US technology to quickly de-rate after which we can all resume and move on.

I have my doubts (whether that might actually take place). So what’s the alternative?

I guess, in case of no such disaster scenario unfolding, investors outside of the US, including in Australia, will have to turn comfortable again with owning quality, high growth, AI-beneficiaries and technology stocks.

And that, as I like to describe it, is a process.

Which is why it’s virtually impossible to predict how exactly this situation will normalise, or what might be the trigger. Maybe it’ll be as simple as sellers running out of stocks to sell?

Of one thing I remain certain: this too shall pass, eventually.

Like it did in late 2016 and all other occasions in between.

More reading:

https://fnarena.com/index.php/2025/11/12/rudis-view-new-trends-recurring-anxieties/

https://fnarena.com/index.php/2025/11/05/rudis-view-what-about-the-ai-bubble-anxiety/

https://fnarena.com/index.php/2025/10/29/rudis-view-identifying-quality-opportunities/

https://fnarena.com/index.php/2025/10/22/rudis-view-in-corporate-earnings-we-must-trust/

Paying subscribers have 24/7 access to my curated lists of All-Weather performers and related selections: 

https://fnarena.com/index.php/analysis-data/all-weather-stocks/

Review All-Weather Model Portfolio

The financial year ending on June 30th 2025 featured the return of Donald Trump in the White House and of extreme market volatility.

The second half of the year also saw doubt creeping into general sentiment towards AI and demand for data centres.

All in all, a gain of 13.85% (pre-fees) for the twelve months is not something to be unhappy about, right?

FY25 review of the All-Weather Model Portfolio: https://www.fnarena.com/index.php/download-article/?n=4B38C0EF-A173-8CE6-736A7AFC7B19FC49

Model Portfolios, Best Buys & Conviction Calls

This section appears from now on every Thursday morning in a separate update on the website. See Rudi’s Views for the archive going back to 2006 (not a typo).

FNArena Subscription

A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (21 since 2006); examples below.

(This story was written on Monday, 17th November 2025. It was published on the day in the form of an email to paying subscribers, and again on Wednesday as a story on the website).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena’s see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: contact us via the direct messaging system on the website).

Click to view our Glossary of Financial Terms