When Berkshire Hathaway (BRK.A -0.08%) (BRK.B 0.09%) CEO Warren Buffett makes a move, Wall Street wisely pays attention. That’s because in his more than 57 years at the helm of Berkshire Hathaway, he has driven his company’s Class A shares (BRK.A) to a more than 3,600,000% return and outperformed the benchmark S&P 500 by a factor of more than 100.
The best thing about riding the coattails of the Oracle of Omaha is that it can be done with ease. Money managers with more than $100 million in assets under management must file Form 13F with the Securities and Exchange Commission (SEC) on a quarterly basis. A 13F is effectively an under-the-hood look at what the brightest money managers have been buying, selling and holding in the last completed quarter. Berkshire Hathaway should file its 13F with the SEC after the market closes on Monday, August 15, 2022.
Curious investors use 13F filings to ride Buffett’s coattails
Investors have been able to use Berkshire’s 13Fs to track and mirror Warren Buffett’s trades, should they decide to do so.
For example, the Oracle of Omaha has been a big buyer of oil stocks in 2022. During the first three months of the year, Berkshire bought nearly 121 million shares of Chevron (CLC -0.15%) and has been constantly adding to Western Petroleum (OXY 1.75%). The latest SEC filing has Berkshire’s position in Occidental north of 181 million shares. Note that Buffett’s company also owns $10 billion of preferred stock in Occidental that yields 8% a year.
Warren Buffett’s newfound love of energy stocks can be taken as a sign that he believes oil and natural gas prices will remain high for years to come. This is not a far-fetched forecast given that major oil and gas companies significantly reduced investments in drilling and infrastructure during the pandemic. Add to that Russia’s invasion of Ukraine, and there is a clear supply problem for the global energy complex that will not be easily remedied.
Investors have also seen Oracle of Omaha continue to grow their company’s position in Apple (AAPL -0.29%). Previously mentioned by Warren Buffett as one of the “four giants” of Berkshire Hathaway, Apple accounted for 42.5% of Berkshire’s $354 billion of invested assets since this past weekend.
Apple has an extremely recognizable brand, a loyal customer base, and has ridden a wave of innovation since the mid-2000s to become the largest publicly traded company in the United States. The company’s iPhone commands share of the US smartphone market, and its CEO, Tim Cook, is overseeing a multi-year transition that focuses on subscription services.
The “hidden” stocks Warren Buffett has invested $62 billion in since 2018
However, you may be surprised to learn that Berkshire Hathaway’s 13F doesn’t tell the full story about where Buffett and his investment team are putting the company’s money to work. There is one stock that Buffett has bought more of in the last four years than any other holding in the company’s investment portfolio, and you won’t find it in a 13F.
On Saturday, August 6, 2022, Berkshire Hathaway released its second quarter operating results. Towards the end of the company’s 10-Q filing with the SEC (page 44 of the filing) its share repurchase activity during the second quarter is listed. In total, 2,397 Class A shares were repurchased, with 25,462 Class B shares repurchased. The grand total of these buybacks in the second quarter was just over $1 billion.
But this mark only a fraction of the capital that Warren Buffett and his right-hand man, Charlie Munger, have allocated to buy back the shares of their own company over the last four years. Since July 17, 2018, this dynamic duo has overseen the repurchase of more than $62 billion of Berkshire Hathaway Class A and B shares. That’s far more than Buffett’s company has invested in Apple or Chevron.
Prior to July 17, 2018, the buyback rules stated that Buffett could only pull the trigger if his company’s price-to-book ratio was 120% or less (i.e. the price of Berkshire Hathaway shares). did not exceed 20% of book value). At no time between 2012 and 2018 did the book value of Buffett’s company drop to this point; ergo, there were no share buybacks.
But on July 17, 2018, the Berkshire’s board approved two new measures that gave Buffett and Munger more room to pull the trigger on buybacks. As long as the company has at least $30 billion in cash and US Treasuries, and both Buffett and Munger believe the shares are trading at a discount to intrinsic value, buybacks can be completed without limitation. In four years, this dynamic duo has spent about $62.1 billion to buy back shares of Berkshire Hathaway.
Why it makes sense to buy back Berkshire Hathaway shares
You may be wondering why some of the smartest investors of our time choose to buy back their own shares rather than invest this capital in new investments and/or acquisitions.
For starters, the Berkshire Hathaway share buyback helps existing Class A and B shareholders become more significant “owners” of the company. With fewer shares outstanding, shareholders have a growing stake in Berkshire’s $354 billion investment portfolio and roughly five dozen acquired businesses, including the GEICO insurance company and the BNSF railroad.
To expand on this point, having fewer shares outstanding as a result of buybacks can help Berkshire Hathaway appear more attractive on a fundamental basis. For companies with steady or growing net income, buybacks help boost earnings per share, which can ultimately lower price-earnings. This has the potential to attract buyers who will bid up the price of a perceived cheap stock.
Finally, putting $62.1 billion to work through share buybacks sends a clear message to Wall Street and investors that Warren Buffett and Charlie Munger are very confident in betting on themselves and their company. It implies that the value of the company’s investment portfolio should continue to rise and that the set of companies owned by Berkshire Hathaway is expected to grow in profits over the long term.
Sean Williams has no position in any of the mentioned stocks. The Motley Fool holds positions and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: Long January 2023 $200 Call on Berkshire Hathaway (B-stock), Long March 2023 $120 Call on Apple, Short January 2023 $200 Put on Berkshire Hathaway (B-stock), short January 2023 $265 Call on Berkshire Hathaway (B shares) and short $130 March 2023 calls on Apple. The Motley Fool has a disclosure policy.