When Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) 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's led his company's Class A shares (BRK.A) to a greater than 3,600,000% return and outperformed the benchmark S&P 500 by a factor of well over 100.
The great thing about riding the Oracle of Omaha's coattails is that it can be done with ease. Money managers with more than $100 million in assets under management are required to 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 most recently ended quarter. Berkshire Hathaway should be filing its 13F with the SEC after the market closes next Monday, Aug. 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 choose 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 purchased almost 121 million shares of Chevron(NYSE: CVX) and has consistently been adding to Occidental Petroleum(NYSE: OXY). The latest SEC filing has Berkshire's position in Occidental at north of 181 million shares. Keep in mind Buffett's company also owns $10 billion worth of preferred stock in Occidental that's yielding 8% annually.
Warren Buffett's new-found love of energy stocks can be taken as a sign that he believes oil and natural gas prices will remain elevated for years to come. This isn't a far-fetched prognostication given that drilling and infrastructure investments were pared down significantly by major oil and gas companies during the pandemic. Add to that Russia's invasion of Ukraine, and there's a clear supply problem for the global energy complex that won't be easily remedied.
Investors have also seen the Oracle of Omaha continue to grow his company's position in Apple(NASDAQ: AAPL). Previously referred to by Warren Buffett as one of Berkshire Hathaway's "four giants," Apple accounted for 42.5% of Berkshire's $354 billion of invested assets as of this past weekend.
Apple has an extremely well-recognized 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 dominates U.S. smartphone market share, and its CEO, Tim Cook, is overseeing a multiyear transition that focuses on subscription services.
The "hidden" stock Warren Buffett has plowed $62 billion into since 2018
However, you might be surprised to learn that Berkshire Hathaway's 13F doesn't tell the full story about where Buffett and his investing team are putting the company's money to work. There's one stock Buffett has purchased more of over the past four years than any other holding in the company's investment portfolio -- and you won't find it in a 13F.
On Saturday, Aug. 6, 2022, Berkshire Hathaway filed its second-quarter operating results. Toward the end of the company's 10-Q filing with the SEC (page 44 of the filing) is listed its share buyback activity during the second quarter. All told, 2,397 Class A shares were repurchased, with 25,462 Class B shares bought back. The grand total for these buybacks in the second quarter came in at just over $1 billion.
But this marks just a fraction of the capital Warren Buffett and his right-hand man Charlie Munger have allocated for buying back their own company's stock over the past 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 stock. That's far more than Buffett's company has invested in Apple or Chevron.
Prior to July 17, 2018, the rules regarding buybacks stated that Buffett could only pull the trigger if his company's price-to-book value was 120% or lower (i.e., Berkshire Hathaway's share price was no higher than 20% above book value). At no point between 2012 and 2018 did Buffett's company's book value drop to this point -- ergo, no share repurchases.
But on July 17, 2018, the Berkshire board passed two new measures that gave Buffett and Munger more leeway to pull the trigger on buybacks. As long as the company has at least $30 billion in cash and U.S. Treasuries, and both Buffett and Munger believe shares are trading at a discount to intrinsic value, buybacks can be completed without any limitations. In four years, this dynamic duo has deployed about $62.1 billion to buy back Berkshire Hathaway stock.
Why buying back Berkshire Hathaway stock makes sense
You might be wondering why some of the smartest investors of our time are choosing to repurchase their own stock rather than deploying this capital into new investments and/or acquisitions.
To begin with, buying back shares of Berkshire Hathaway stock helps existing Class A and B shareholders become larger "owners" of the company. With fewer shares outstanding, shareholders have an increasingly larger stake in Berkshire's $354 billion investment portfolio and roughly five-dozen acquired businesses, such as insurer GEICO and railroad BNSF.
To build 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 reduce the price-to-earnings ratio. This has the potential to attract buyers who'll bid up the share price of a perceived-to-be inexpensive stock.
Lastly, putting $62.1 billion to work via share buybacks sends a clear message to Wall Street and investors that Warren Buffett and Charlie Munger are extremely confident betting on themselves and their company. It implies that the value of the company's investment portfolio should continue to rise, and that the aggregate of companies owned by Berkshire Hathaway are expected to grow their profits over the long run.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.