Oracle of Omaha has been buying his favorite stocks for 23 consecutive quarters.
About 40,000 investors flocked to Omaha last weekend. berkshire hathaway‘s (BRK.A 0.78%) (BRK.B 0.71%) Annual General Meeting. The temptation was simple. The idea was to listen to Warren Buffett, the “Oracle of Omaha,” talk for hours about stocks, the U.S. economy, and his investment philosophy.
Since becoming CEO of Berkshire Hathaway in the mid-1960s, Buffett has cycled through a wide range of Wall Street’s stock indexes.On the other hand, the benchmark S&P500 has a total return of nearly 34,000%, including dividends paid. Since he took over as his CEO, “Oracle” has led his company’s Class A stock (BRK.A) to nearly 4,900,000% return.
With a winning track record dating back more than half a century, professional and everyday investors await the quarterly Form 13F to find out what Warren Buffett has been buying and selling. No wonder. But what may surprise investors is the lack of buying activity in Buffett’s favorite stocks on the 13th floor.
Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.
Mr. Buffett’s purchasing activities were selective.
13Fs are required to be filed quarterly by institutional investors and asset managers with at least $100 million in assets under management. This report can be filed within 45 days of the end of a quarter, so while it may contain somewhat outdated data, it provides a snapshot of what Wall Street’s brightest minds have bought and sold.
Over the past six quarters, Warren Buffett and his powerful investment aides (Ted Weschler and Todd Combs) have decisively sold far more than they have bought.
In total, Berkshire Hathaway sold $56 billion more in stock than it bought from October 1, 2022 to March 31, 2024. However, Berkshire’s 13th floor hasn’t been sold, so we don’t have a complete picture of what sold in the latest quarter. The deadline is May 15, but the important point is that Buffett and his team have been very selective buyers for more than a year.
If there’s one holding that Berkshire Hathaway holds that has bucked this trend over the past six quarters, it’s energy stocks. western oil (Oxy -0.31%). Berkshire’s stake in oil and gas conglomerate Occidental has been added to regularly over the past two years. In fact, Oracle of Omaha declared in its most recent annual letter to shareholders that it expects Occidental to be held “indefinitely.”
Part of Buffett’s love for Occidental Petroleum comes from his recognition that oil is a necessity for the growing U.S. and global economy. He is keenly aware that recessions are a normal part of the business cycle, but the U.S. economy’s periods of growth have, on average, significantly outpaced the post-World War II economic downturn. Prolonged economic expansion often means increased demand for fossil fuels.
Another unique thing about Occidental Petroleum is that it derives the majority of its revenue and operating profit from its drilling division, even though it is an integrated energy company that also owns chemical plants. If the spot price of crude oil stays above historical norms or rises further, it would benefit Occidental more than any other integrated oil and gas company.
Moreover, macro factors are working in the company’s favor. Global oil supplies have been constrained by nearly three years of reduced capital spending by energy giants due to pandemic-related uncertainties. Therefore, it is unlikely that there will be an oversupply of this high-demand product any time soon.
Image source: Getty Images.
Oracle of Omaha bought more than $77 billion worth of favorite stocks
Despite purchasing more than 248 million Occidental Petroleum shares since the beginning of 2022, that’s still nowhere near the amount of capital Warren Buffett has actively invested in his favorite stocks.
As I pointed out, you won’t find any mention of this mystery stock in the company’s 13F of its quarterly filings. However, Berkshire Hathaway’s quarterly investment report devotes an entire page to this stock. We can see that the company’s share buyback activity takes place just before the board certification. That’s right, folks… Warren Buffett’s must-buy stocks are: own company stock!
Less than six years ago, Berkshire Hathaway’s stock repurchase program was different than it is today. Before mid-July 2018, companies could only buy back their own shares if their stock price fell below 120% of book value. In the five years ending in July 2018, Berkshire Hathaway’s stock price never fell below this threshold. The short story is that for a long time, not a single yen was invested in stock buybacks.
On July 17, 2018, Berkshire’s Board of Directors amended the bylaws governing the company’s stock repurchase program. The two new standards specify when:
- Berkshire Hathaway has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet.and
- Warren Buffett and the (late, great) Charlie Munger believe that the company’s stock is inherently cheap and that they can initiate buybacks with no cap or end date.
During the quarter that ended in March, Warren Buffett didn’t hesitate to buy his own stock. A total of 4,232 Class A shares were repurchased during the first quarter for his $2,572,710,359. This is the 23rd consecutive quarter that Mr. Buffett has overseen stock buybacks, and the total amount of capital he has invested in stock buybacks in six years has exceeded $77 billion.
Berkshire Hathaway doesn’t pay dividends, so continually buying back its own stock is Warren Buffett’s way of rewarding his loyal shareholders.
Buffett is a big fan of stock buyback programs because they allow long-term investors to steadily increase their ownership stake. As a company’s number of outstanding shares decreases, remaining investors own more of the remaining shares. This is the type of mindset and mentality that Buffett wants to spread to his company’s shareholders.
Additionally, companies with stable or increasing net income should see their earnings per share (EPS) increase through share buybacks. Since July 2018, more than $77 billion in stock buybacks have undoubtedly boosted Berkshire’s EPS, making it even more attractive to fundamentals-focused investors.
Berkshire ended the March quarter with $189 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet, and Buffett said at the company’s annual meeting that his company’s war chest will top $200 billion by the end of the quarter. He hinted that it was pace. There’s no doubt that Oracle of Omaha will continue to be a favorite stock to buy this quarter.
