Last weekend, in the neighborhood of 40,000 investors flocked to Omaha for Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) annual shareholder meeting. The lure was simple: to hear the “Oracle of Omaha,” Warren Buffett, speak about stocks, the U.S. economy, and his investing philosophy for hours on end.
Since taking over as the CEO of Berkshire Hathaway in the mid-1960s, Buffett has run circles around Wall Street’s broad-market stock indexes many times over. Whereas the benchmark S&P 500 is closing in on a 34,000% aggregate total return, including dividends paid, since he became CEO, the “Oracle” has led his company’s Class A shares (BRK.A) to a return of nearly 4,900,000%!
With a winning track record that dates back more than a half-century, it’s not a surprise that professional and everyday investors wait on pins and needles for quarterly filed Form 13Fs to see what Warren Buffett has been buying and selling. But what investors might find surprising is that the buying activity for Buffett’s favorite stock won’t be found in a 13F.
Buffett’s buying activity has been selective
A 13F is a required quarterly filing for institutional investors and money managers with at least $100 million in assets under management. Though it can be filed up to 45 days following the end of a quarter, and thus can contain somewhat stale data, it provides a snapshot of what Wall Street’s brightest minds have been buying and selling.
Over the past six quarters, Warren Buffett and his top investing aides (Ted Weschler and Todd Combs) have decisively done far more selling than buying.
Collectively, Berkshire Hathaway has sold $56 billion more in equity securities than have been purchased between Oct. 1, 2022 and March 31, 2024. Though we don’t have the complete picture of what’s been sold in the latest quarter since Berkshire’s 13F isn’t due until May 15, the key point is that Buffett and his team have been very selective buyers for more than a year.
If there’s one Berkshire Hathaway holding that’s bucked this trend over the previous six quarters, it’s energy stock Occidental Petroleum (NYSE: OXY). Berkshire’s stake in integrated oil and gas stock Occidental has been added to with regularity over the past two years. In fact, the Oracle of Omaha declared in his latest annual letter to shareholders that he anticipates Occidental being an “indefinite” holding.
Part of Buffett’s love for Occidental Petroleum comes from his recognition that oil a necessity for a growing U.S. and global economy. Although he astutely understands that recessions are a normal part of the economic cycle, periods of growth for the U.S. economy have, on average, substantially outlasted economic downturns since the end of World War II. Lengthy economic expansions often mean increased fossil fuel demand.
Something else unique about Occidental Petroleum is that, despite being an integrated energy company that also owns chemical plants, it generates the lion’s share of its revenue and operating income from its drilling segment. If the spot price of crude oil remains above historic norms or heads even higher, it’ll benefit Occidental more than just about any other integrated oil and gas company.
To add, macro factors are working in the company’s favor. Approximately three years of reduced capital investment from energy majors due to pandemic-related uncertainty has constrained the global supply of oil. This makes it unlikely that this in-demand commodity will be oversupplied anytime soon.
The Oracle of Omaha has purchased over $77 billion worth of his favorite stock
Despite purchasing over 248 million shares of Occidental Petroleum since the start of 2022, it doesn’t come close to the amount of capital Warren Buffett has willingly to put to work in his favorite stock.
As I pointed out, you’re not going to find any mention of this mystery stock in the company’s quarterly filed 13F. However, Berkshire Hathaway’s quarterly operating report devotes an entire page to this stock. Just prior to the executive certifications, you’ll find the company’s share repurchase activity. That’s right, folks… Warren Buffett’s absolute favorite stock to buy is shares of his own company!
Less than six years ago, Berkshire Hathaway’s share repurchase program looked different than it does today. Prior to midpoint of July 2018, buybacks could only be undertaken if the company’s stock fell to or below 120% of book value. At no point for well over a half-decade leading up to July 2018 did Berkshire Hathaway’s stock dip to below this threshold. Long story short, not a cent in capital was put toward buybacks for a long time.
On July 17, 2018, Berkshire’s board revamped the covenants governing the company’s share repurchase program. The two new criteria stated that if:
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Berkshire Hathaway has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet; and
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Warren Buffett and (the late, great) Charlie Munger believe the company’s shares are intrinsically cheap, buybacks can commence with no ceiling or end date.
During the March-ended quarter, Warren Buffett wasn’t shy about buying his own company’s stock. A total of 4,232 Class A shares were repurchased during the first quarter for $2,572,710,359! This marks the 23rd consecutive quarter Buffett has overseen the repurchase of his company’s stock, and increased the total amount of capital deployed to buy back shares to north of $77 billion in under six years.
Since Berkshire Hathaway doesn’t pay a dividend, continually buying back stock is Warren Buffett’s way of rewarding his faithful shareholders.
The reason Buffett is such a huge fan of share repurchase programs is because they can steadily increase the ownership stakes of long-term investors. As a company’s outstanding share count declines, remaining investors own an incrementally larger stake of what remains. This is the type of mindset and ethos that Buffett wants to promote to his company’s shareholders.
Additionally, businesses with steady or rising net income should see their earnings per share (EPS) rise with buybacks. Undertaking more than $77 billion in aggregate share repurchases since July 2018 has undoubtedly lifted Berkshire’s EPS and made it even more attractive to fundamentally focused investors.
With Berkshire ending the March quarter with $189 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet, and Buffett intimating during the annual meeting that his company is on pace to top $200 billion in its war chest by the end of the current quarter, you can all but rest assured that the Oracle of Omaha will continue buying shares of his favorite stock.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett’s Latest $2.6 Billion Buy Brings His Total Investment in This Stock to More Than $77 Billion in Under 6 Years was originally published by The Motley Fool