Ahead of Berkshire Hathaway’s 4th quarter results and annual shareholder letter being released this month, Warren Buffett has given investors a few tantalising clues about the way he sees the markets via his company’s 4th quarter investment report.
The bottom line wasn’t so much what he is investing in – the three months to December was a quiet one for Berkshire.
The real story from the performance of the portfolio is that Buffet’s company is looking another multibillion-dollar paper boost to 4th quarter earnings from the capital gains in the portfolio.
And that won’t please Buffett who will again go on about the unreal nature of this form of earnings reporting (he does have a good point).
The latest 13F filing with the US Securities and Exchange Commission – which requires investment managers with at least $100 million in assets to reveal quarterly their changes in share ownership – shows Berkshire Hathaway ended the December quarter and 2021 like it started it: as a net seller of equities, especially in financials and healthcare.
The filing revealed that Berkshire’s portfolio was up by around $US37.5 billion in value in the December quarter to nearly $US331 billion from just over $US293 billion.
Because under accounting rules, Berkshire has to take paper profits and losses into its accounts, the 12.7% gain in the value of the portfolio means Berkshire will shortly report one of its highest ever quarterly results.
A year earlier Berkshire had unrealised gains of $US30.4 billion based on the rise in the value of its portfolio in the final quarter of 2020. All up the company reported a profit of $US35.8 billion.
Given the slide in the US market since December, the value would be significantly lower as would be the size of the unrealised capital gain. The S&P 500 which Berkshire shares closely track, is down more than 9% so year to date.
The December filing showed that Buffett and Berkshire went off healthcare while some financials are not as in favour – mainly Visa and Mastercard.
But there’s a $US1 billion position in a new online bank that straddles South America and a big stake in the company that owns Formula 1 racing.
Berkshire bought three new stocks (in the float of Nu, the online bank based in South America, Activision Blizzard, which Microsoft is buying, and Liberty Media which controls Formula 1 racing) and added to existing holdings in another four (Liberty Sirius Communications, Chevron, Restoration Holdings and Floor and Decor).
It sold out of 2 (Sirius XM Holdings and Teva, a pharmaceutical company) and cut its holdings in 8 others (AbbieVie Inc, Royalty Pharma, Bristol-Myers Squibb, Kroger, Visa, Charter Communications, Mastercard, Marsh & McLennan Companies).
Apple remains the biggest investment at more than $US157 billion at the end of 2021 and 47.6% of the $US331 billion portfolio. Bank of America is next with a stake equal to 14.6% of the portfolio.
Buffett spent more than $US20 billion repurchasing Berkshire stock in the first three quarters of 2021, including $US7.6 billion during the third quarter. Buffett has made clear the buybacks are done in tandem with buybacks of some of his company’s bigger shareholders – especially Apple.
Analysts have seen signs of more buybacks in the December quarter and see another big figure being revealed in the December quarterly report.
In fact the amount spent on buybacks is now probably the single largest area of investment for Buffett and his company.
