Warren Buffett's Mystery Stock is Revealed, but That's the Far Bigger Surprise - Latest Global News

Warren Buffett’s Mystery Stock is Revealed, but That’s the Far Bigger Surprise

In 1973 Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) held its first annual meeting in the cafeteria of one of its subsidiaries, drawing a few dozen people. Earlier this month, about 40,000 people made the trek to Omaha, Nebraska, to attend Berkshire’s annual meeting to hear billionaire CEO Warren Buffett talk about his company, the U.S. economy and his investment philosophy.

Since Buffett took the reins at Berkshire Hathaway in the mid-1960s, he has returned more than 5,050,000% on his company’s Class A shares (BRK.A). This completely exceeds the total return of around 34,700% including dividends for the general investor community S&P 500 over the same route.

Warren Buffett surrounded by people at Berkshire Hathaway's annual shareholder meeting.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Warren Buffett and his team secretly built a position in Berkshire’s $378 billion portfolio

Investors pay close attention to what the “Oracle of Omaha” says because mirroring their investments has been a money-making strategy for decades. Luckily, there’s an easy way to follow in Buffett’s footsteps.

May 15 marked the deadline for institutional investors and asset managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides a snapshot of what Wall Street’s smartest and most successful money managers bought and sold in the last quarter. Given that Buffett manages a $378 billion investment portfolio at Berkshire, he and his team are definitely required to file a 13F with the SEC.

However, Berkshire’s two previous 13F filings (for the quarters ending in September and December) contained a provision granting the company “confidential treatment” for one or more of its securities. This is a fancy way of saying that Warren Buffett and his team have requested and received permission not to disclose the one or more stocks in which they are establishing a position.

The reason for this secrecy is simple: both professional and ordinary investors tend to rush into the stocks that the Oracle of Omaha and his team buy. By keeping this stock secret, Buffett and his team would have the opportunity to build a stake at a reasonably lower share price.

This stock is no longer a secret – even if it’s not the biggest surprise of Berkshire Hathaway’s 13F.

Warren Buffett’s ‘Confidential Treatment’ Stock Revealed

A few months ago, I put together the clues to this “confidential” stock using data from Berkshire Hathaway’s operating results and Buffett’s historical investing activities. I was able to narrow these mystery candidates down to seven stocks, but I ended up focusing on the wrong stock.

Despite the sale of shares in other insurers, such as Globe life And Markel GroupThe mystery stock, of which Berkshire has acquired more than 25.9 million shares since mid-2023 (worth $7.1 billion at the time of writing), is a Swiss-based property and casualty (P&C) insurer ). Chubb (NYSE:CB).

Warren Buffett and his team know a thing or two about property and casualty insurers. Berkshire Hathaway owns GEICO, one of the largest property and casualty insurance companies in the country. GEICO also happens to be one of Buffett’s greatest investments of all time.

While the insurance industry can certainly be described as “boring,” buying a 6.4% stake in Chubb is right up Warren Buffett’s alley.

Although catastrophic losses are an inevitable part of an insurer’s operations, the property and casualty insurance industry generally has exceptional premium pricing power. If an event occurs that leads to higher payouts, insurers can justify increasing premiums to their customers. However, if payouts are normal or below average, insurers still have the option to increase premiums on the grounds that they are preparing for the next inevitable claim.

Insurance companies also benefit from the Federal Reserve’s restrictive monetary policy. Although insurers’ ultimate goal is to generate more revenue than is paid out in claims, they also earn interest income from their current assets – the revenue they earn that is not paid out in claims. The fastest rate hikes in four decades have pushed yields on short-term Treasury bonds to around 5%. As long as the prevailing inflation rate remains above the Fed’s long-term target, insurers will benefit from additional interest income.

And of course there’s Chubb’s excellent return on capital program. Last week, the company announced that it would increase its annual base payout for the 31st consecutive year.

Additionally, Chubb’s board also approved a new $5 billion stock repurchase program in June 2023, just before Warren Buffett and his team began buying shares. The continued reduction in Chubb’s share count will gradually increase Berkshire Hathaway’s ownership stake in the company.

A blue street sign reading “Risk Ahead.”A blue street sign reading “Risk Ahead.”

Image source: Getty Images.

This is much more surprising than Buffett building a stake in Chubb

However, the unraveling of Berkshire’s growing stake in Chubb wasn’t the most surprising takeaway from Berkshire Hathaway’s 13F filing with the SEC for the quarter ended March. Rather, it is the revival of sales activities by Warren Buffett and his team, which included a significant reduction in the company’s holdings Apple.

Even accounting for the position built by the Oracle of Omaha and his team in Chubb, Berkshire’s brightest minds have been net sellers of stocks for six quarters in a row. Here is how net selling activity has developed since October 1, 2022:

  • Fourth quarter of 2022: Net stock sales of $14.64 billion.

  • First quarter of 2023: Net stock sales of $10.41 billion.

  • Second quarter of 2023: Net stock sales of $7.981 billion.

  • Third quarter of 2023: Net stock sales of $5.253 billion.

  • Fourth quarter of 2023: Net stock sales of $0.525 billion.

  • First quarter of 2024: Net stock sales of $17.281 billion.

In total, Buffett and his top investment advisers Ted Weschler and Todd Combs sold $56.09 billion more in stocks than they bought over an 18-month period.

Although Warren Buffett is a long-term investor who is always betting on America’s success, it is obvious that he and his investment team are not finding much of value on Wall Street right now. This can be confirmed by taking a closer look at the S&P 500’s Shiller price-to-earnings ratio, which, when backtested to 1871, has one of the highest values ​​during a bull market rally in history.

Buffett also noted during his company’s annual shareholder meeting that Berkshire’s cash holdings, which include U.S. Treasury bonds, could reach an all-time high of $200 billion in the current quarter. This signals that further sales are expected.

Until the stock market experiences a significant decline, we may not see much buying activity from the Oracle of Omaha – and that’s something the investing community is definitely not used to.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway and Markel Group. The Motley Fool has a disclosure policy.

Warren Buffett’s Mystery Stock Is Revealed, But That’s the Far Bigger Surprise Originally reported by The Motley Fool

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