Here's What Warren Buffett Is Buying and Selling

There are few investors whose stock purchases are as closely followed as Warren Buffett. Berkshire Hathaway (BRK.A -0.37%) (BRK.B -0.13%) investors have been pleased so far in 2018 that the Buffett-led company has been able to find ways to put its money to work in the stock market after years of building up its cash. With the company's latest 13-F filing with the SEC, we just learned that this trend continued in the third quarter.

In fact, this was one of the most active stock-picking quarters Berkshire has had in some time. The conglomerate bought shares of a dozen different companies, five of which are brand new to the portfolio.

And, while there was a bit of selling, Berkshire was definitely a net buyer of stocks during the third quarter -- and by a wide margin. With that in mind, here's a look at what Berkshire bought and sold, and the key takeaways for investors.

Image Source: The Motley Fool.

Berkshire Hathaway's third-quarter buys

As I mentioned, Berkshire added shares of 12 different stocks during the third quarter, and some of the purchases were quite large.

Data Source: Berkshire Hathaway SEC filings. Stock prices as of 11/14/18.

This was a pretty active quarter for Berkshire in terms of stock purchases. Five newly initiated stock positions is the most Berkshire has added to its portfolio in a single quarter in some time.

The biggest takeaway is the massive buying of bank stocks. In addition to purchasing a roughly $4 billion stake in JPMorgan Chase, Berkshire added about $5.5 billion worth of Bank of America, as well as substantial amounts of longtime holdings U.S. Bancorp, Goldman Sachs, and Bank of New York Mellon. In these four banks, Berkshire increased its stakes by 29%, 24%, 38%, and 20%, respectively. As if that weren't enough, Berkshire also initiated a small position in PNC Financial and, as we already knew, invested in fintech company StoneCo's IPO.

So, while we already knew Buffett was a big fan of the banking business, he apparently thinks the sector is very attractive right now.

The most significant non-bank stock purchase Berkshire made was a $4 billion stake in tech giant Oracle. It's unclear at this point why Oracle was added to the portfolio, but it is fair to say that with its massive (and growing) Apple stake and its investment in StoneCo, the company has been more receptive to investing in fintech in recent years.

One not mentioned on the list

In addition to the stocks listed in the chart, another stock Buffett and his team decided to buy during the third quarter was Berkshire Hathaway itself.

Berkshire's buyback policy was recently modified, and now allows Buffett to buy back stock at any time when he and Vice Chairman Charlie Munger both agree that it's trading for a discount to its intrinsic value. Well, during the third quarter, Berkshire bought back nearly $1 billion worth of its own stock at an average price of just over $207. While a $1 billion repurchase represents less than 0.2% of Berkshire's outstanding stock, the key takeaway is that Buffett is telling us that he believes Berkshire's stock is worth substantially more than $207 per Class B share.

Here's what Buffett and his team sold

Warren Buffett is an outspoken supporter of buy-and-hold investing, having said many times that he looks for stocks that he could hold for decades. However, it's important to realize that Buffett makes no commitment to hold any stock for any length of time. In fact, Berkshire sells stocks from its portfolio regularly, and for a variety of reasons. And the third quarter was no exception.

With that in mind, here's what Berkshire sold during the third quarter of 2018:

Data source: Berkshire Hathaway SEC filings. Stock prices as of 11/14/18.

While this may look like a lot of selling activity at first glance, there are a few key points to keep in mind. First, the largest sale by dollar amount, Phillips 66, has been known for some time, and is a stock that Buffett has been unloading for a while now.

Second, the sale of some of the company's Wells Fargo stock may seem odd, given that Berkshire loaded up on other bank stocks during the third quarter. However, this was a small amount (2%) of Berkshire's Wells Fargo stake, and was likely done to keep Berkshire's stake below 10% of the banking giant. Wells Fargo has been buying back stock aggressively, so a trimming of Berkshire's stake may have been necessary.

Next, you'll notice that Berkshire sold shares of three airline stocks. Berkshire has made small moves with some of its airline stocks in recent quarters -- you'll notice that along with the sales, Berkshire actually bought some more Delta. And, none of the sales represented more than a 2% reduction in Berkshire's stake in any airline.

Finally, Berkshire got rid of Sanofi and Walmart entirely, but these two stocks were all but gone already. The combined value of the disposed stakes was about $300 million -- which is extremely small by Berkshire's standards.

The bottom line: Don't read too much into any of these sales. We didn't get much of a surprise on the selling side of the equation.

Buffett's most interesting buys could have come after the quarter ended

Here's an important point to keep in mind. The buying and selling activity discussed here comes from the third quarter of 2018, which ran from July 1 through Sept. 30. Meanwhile, the recent market volatility started in early October -- after the period covered by the company's recent filing.

The point is that historically speaking, Buffett and his team have made some of their largest (and most lucrative) stock investments during turbulent periods. So, while the third quarter was certainly an active one for Buffett and his stock pickers, don't be surprised if it pales in comparison to the fourth quarter.