Warren Buffett hinted at his thinking and recent actions in Berkshire Hathaway’s latest earnings.
The investor appears to have shifted cash into Treasuries and sold about 10% of his Chevron stake.
He seems to have accelerated buybacks, spending $800 million between end-September and October 24.
Warren Buffett’s Berkshire Hathaway published its third-quarter earnings on Saturday, providing fresh clues about the famed investor’s thinking and his moves in recent weeks.
“There’s certain things you can actually figure out by looking at our 10-Q,” Buffett said during Berkshire’s annual shareholder meeting in May. “But you have to look pretty hard.”
Here are three hidden nuggets from Berkshire’s latest earnings:
1. Banking on bonds
News headlines focused on Berkshire’s record $157 billion cash pile at the end of September. But dig a little deeper and there’s clear evidence that Buffett and his team are capitalizing on higher interest rates by shifting their money into short-term government bonds.
Berkshire held about $50 billion of cash and cash equivalents, and $97 billion of Treasury bills, at the end of June. Its cash reserves shrank by $19 billion, or 38%, to about $26 billion over the next three months. Meanwhile, its pile of Treasury bills rose by 30% to $126 billion in that period.
The conglomerate’s embrace of bonds this year helps explain why it collected more than $11 billion of interest, dividend, and other investment income in the year to September — roughly double the figure for the same period of 2021.
The Federal Reserve has hiked its benchmark rate from nearly zero to north of 5% since early last year in response to historic inflation, which has boosted Treasury yields. It’s no surprise that Buffett and his colleagues have moved to capture that improved risk-free return, while they wait for better opportunities to deploy their dry powder.
2. Selling Chevron
Berkshire appears to have sold Chevron stock worth $2 billion last quarter, or about 10% of its position. Its stake in the oil-and-gas titan was worth $18.6 billion at the end of September, its latest earnings show. That holding would’ve been valued about $21 billion if Berkshire still had the 123 million shares it owned at the end of June, based on Chevron’s stock price at September’s close.
Buffett’s company, which sold more than $5 billion of stocks on a net basis last quarter, seems to have scooped up some financial stocks while paring other parts of its portfolio. The cost base of its banks, insurance, and finance stocks rose by 5% to $24.8 billion. In contrast, the cost base of its consumer-products stocks dropped by about 3% to $35.5 billion, and the “commercial, industrial, and other” segment recorded an 8% decline to $51.1 billion.
Berkshire previously disclosed that it sold HP stock worth about $500 million in September, which explains some of the cost-base decline in consumer products. As for the commercial segment, David Kass, a finance professor and Buffett blogger, suggested on X that Berkshire may have sold its $800 million stake in General Motors. The release of Berkshire’s quarterly stock-portfolio update in mid-November will confirm or refute his suspicions.
3. Boosting buybacks
Buffett and his business partner, Charlie Munger, appear to have ramped up their pace of stock buybacks since the end of September.
Berkshire repurchased only $1.1 billion of its stock last quarter, down from $4.4 billion in the first quarter, likely because the conglomerate’s stock rallied 13% in the six months to September. However, Buffett and Munger seem to have bought back another $800 million of stock between the end of last quarter and October 24, based on the decline in the company’s outstanding shares in that timeframe and its average stock price.
The pair may have pounced because Berkshire shares slid between mid-September and late October. They made the bulk of last-quarter’s repurchases in September, Berkshire’s earnings show, lending support to that theory.
Mining for gold
Buffett’s tease this year shone a light on the gems hidden in his company’s earnings reports. Whether it’s a breakdown of where Berkshire is keeping its cash, hints about tweaks to its stock portfolio, or advance notice of its buyback activity in the current quarter, there’s plenty for sharp-eyed investors to spot.
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