This has been a strange year for the investment community. That includes one of the most successful investors of all-time: Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett.
Over the last 55 years, Warren Buffett's long-term, emotion-averse approach to investing has proved quite lucrative for the company's shareholders. The 20.3% compound annual return for Berkshire's shares more than doubles to 10% compound annual return, including dividends paid, for the broad-based S&P 500. The result is a 55-year outperformance for Buffett's company that surpassed 2,700,000%, as of Dec. 31, 2019.
Many investors look for Buffett and his investing team to stabilize an otherwise news-and-emotion-driven market. But the Berkshire Hathaway of 2020 looks nothing like the Buffett portfolio of old.
Image source: Getty Images.
Buffett has been a big-time seller in 2020
Following the closing bell on Monday, Nov. 16, Berkshire Hathaway filed its Form 13F with the Securities and Exchange Commission (SEC). A 13F is a required quarterly filing for businesses and investors with over $100 million in assets under management, and it provides an under-the-hood look at what big-name money managers were holding in their portfolios as of the end of the most recent quarter (in this case, Sept. 30, 2020).
Historically, a Berkshire Hathaway 13F consists of a small number of new positions, additions, reductions, or complete exits. This year, however, the movement within Buffett's portfolio has been off the rails. Since 2020 began, 35 stocks in Berkshire's investment portfolio have been reduced or completely sold off.
This includes 10 stocks that were completely removed from Berkshire Hathaway's portfolio in the past nine months:
- American Airlines Group
- Southwest Airlines
- Delta Air Lines
- United Airlines
- Occidental Petroleum
- Phillips 66
- Goldman Sachs
- Travelers Cos.
- Restaurant Brands International
- Costco Wholesale
The first nine stocks on this list were removed in the first half of the year, with longtime holding Costco the lone exit during the third quarter.
Image source: Getty Images.
Meanwhile, 25 additional stock have been reduced to a varied degree at some point in 2020. Keep in mind that a very small number of these companies were added to following a first- or second-quarter reduction. Take a deep breath for this (you'll need it):
- Apple
- Charter Communications
- Barrick Gold (NYSE:GOLD)
- M&T Bank
- Wells Fargo
- PNC Financial Services
- JPMorgan Chase
- Mastercard
- Visa
- Bank of NY Mellon
- Synchrony Financial
- U.S. Bancorp
- Sirius XM
- Amazon
- VeriSign
- General Motors
- Biogen
- DaVita
- Teva Pharmaceutical Industries
- Axalta Coating Systems
- Suncor Energy
- Liberty Latin America
- Liberty Global (Class A)
- Liberty SiriusXM Group (Class A)
- Liberty SiriusXM Group (Class C)
In the third quarter, Apple and Barrick Gold joined the list, which is especially surprising for the latter, as it was first added in the sequential second quarter.
Berkshire Hathaway CEO, Warren Buffett. Image source: The Motley Fool.
This is Combs' and Weschler's portfolio now
If your initial thought is, "What the heck is going on?" let me assure you that you aren't alone. This is exceptionally odd behavior for Berkshire Hathaway that has only one logical answer: Buffett continues to cede day-to-day control of investing activity to his investing lieutenants, Todd Combs and Ted Weschler.
Even if Warren Buffett never admitted that this is what's happening, there are numerous telltale signs that suggest Combs and Weschler are now running the show.
For example, Buffett has been very clear in previous interviews that Berkshire Hathaway isn't in the business of slow-stepping its selling activity. If Buffett is no longer a believer in a company, it tends to be disposed of within a few quarters. But throughout 2020, we've watched as Berkshire's 13Fs show modest selling activity (often below 9% of a stake) in well over a dozen instances. That's not how Buffett reduces risk or exits a position.
Another telltale sign is the more than 40% reduction in the Barrick Gold stake. It was already abundantly evident that the purchase of a gold stock in the second quarter wasn't Buffett's doing, especially given his distaste for the lustrous yellow metal. Buffett has always been critical of gold's lack of utility, which made the Barrick Gold buy a clear Combs or Weschler selection. But the giveaway is that Buffett wouldn't turn around and sell more than 40% of a stake just a couple of months after taking it.
Image source: Getty Images.
Yet another sign that Buffett is giving up the reins is Berkshire's new positions in four Big Pharma stocks. Warren Buffett has been avoiding drug stocks for the past decade, primarily because he doesn't have the time or desire to follow clinical trials. Those third-quarter additions can, without question, be attributed to Combs and Weschler.
There was also the September pre-initial-public-offering purchase of more than 6.1 million shares of cloud data warehouse company Snowflake (NYSE:SNOW). I'd mortgage my house on the idea that Buffett can't explain Snowflake's operating model.
Buffett may well be giving his nod of approval, allowing Combs and Weschler to spend a certain amount of capital on investments, but it's become brutally evident from the past three 13F filings that Warren Buffett's investment portfolio really isn't about Buffett anymore.
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