Like the dog that didn’t bark in the Sherlock Holmes short story The Adventure of Silver Blaze, Berkshire Hathaway’s December quarter Fund Manager’s report is important for what Warren Buffett didn’t do in the final three months of 2022.
The world’s most followed investor (and his two assistants, Todd Combs and Ted Weschler) didn’t make any new share investments in the quarter to add to the 49 in the $US300 billion portfolio at the end of September.
Yes, they added some shares – the extra shares in Apple for example, the biggest increase – weren’t a direct purchase, merely the result of a takeover. Berkshire also sold a few, especially in Taiwan Semiconductor Manufacturing (TSMC).
Berkshire hardly spent any serious money at all in the three months to December, inactivity which sends a powerful message that Buffett and his team couldn’t see any value (adding to the stake in Occidental Petroleum was probably the major direct outlay).
Or, was it instead a sign that he is husbanding his cash for a bigger deal than the $US35 billion plunge last year into energy giants Chevron and Occidental?
Berkshire has just over $US100 billion in its float at the end of September, and though their insurance companies will be paying out billions of dollars for winter storms and the damage caused by Hurricane Ian in late September, it’s hard to see Buffett and Berkshire being so strapped for cash they needed to haul back on stockmarket investments for a quarter.
What makes the absence of any new company being added to the portfolio even more of a shock is the fact that 2022 was one of the busiest for Buffett and Berkshire for years.
There were the tens of billions of dollars invested in energy giants Chevron and Occidental, the $US4.1 billion plus into TSMC (now down by 86%) and the closing of the $US11.6 billion takeover of small insurer Alleghany (which owned the $US3.2 billion of Apple shares now added to Berkshire’s holding). There was around $US50 billion outlaid in those three deals alone.
Share buybacks in Berkshire stock, which had totalled more than $US51 billion in 2020 and 2021 (helpful for stabilising the share price in the bust and booms of those two years), gave way to buybacks totalling just $US5 billion in the 9 months to September. (The December figure will be in the quarterly and annual results this weekend.)
The December quarter also saw Berkshire slash its stake in large regional lender US Bancorp by 91% and cut its position in Bank of New York Mellon by 59%.
Both have been long term Buffett holdings that have been strong performers over the years. However the sales in the December quarter weren’t the first in recent times.
Berkshire has been cutting its holdings in financials in recent years as it has bulked up its stake in Bank of America to such an extent it is now the largest shareholder. The most notable sale was the slow exit from a previous bank favourite in Wells Fargo which ended in early 2022.
US banks are forecast to see pressure this year due to rising deposit costs and the impact of a potential recession. The series of rate rises from the Fed and the high (but easing) inflation rate will make it tougher for banks in the next couple of years but they along with Buffett and Berkshire will benefit from those higher rates. The cash float at around $100 billion could generate $US3 to $US4 billion in interest income this year alone.
Berkshire also sold 12% of its stake in video gaming company Activision Blizzard and 10% of its existing position in healthcare products distribution company McKesson and slightly trimmed its positions in Chevron, Kroger and Ally Financial.
Activision is facing a takeover offer from Microsoft that is looking increasingly doubtful as regulators line up against the deal in the US, UK and Europe.
Berkshire’s 13F also showed its stake in Apple rose by more than 333,800 new shares. The shares had a value of $US3.2 billion but no money was outlaid.
The number of new shares was equal to the amount held by insurance company Alleghany, for which Berkshire paid $US11.6 billion and picked up more than $US20 billion in cash, bonds and shares.
Notable sales from last July up to earlier this month were made in Chinese battery and EV maker, BYD which is not in the portfolio.
Berkshire has reduced its stake in recent months by selling around 130 million of its original stake of 225 million in the Hong Kong-listed shares. There has been no explanation for the sales which have come as BYD moved to the top of the rankings of EV makers around the world.
