Quietly, one of the most anticipated deadlines of the quarter has come and gone. Last Friday, Nov. 15, marked the last day for money managers and investment firms with more than $100 million in assets under management to file Form 13 with the Securities and Exchange Commission (SEC) for the third quarter.
Form 13 is a required filing that discloses the holdings of investment firms and hedge funds as of Sept. 30 (13Fs are required to be filed with the SEC no later than 45 days after a quarter ends). Although these filings have certain flaws, such as providing a portfolio snapshot that's 45 days old, they nevertheless provide a unique under-the-hood look at what the brightest minds on Wall Street have been up to over the previous quarter. Form 13F filings might even help Wall Street and investors spot trends, industries, or stocks well before they begin heating up.
As you'd expect, a number of the market's most popular names continued to draw heavy investment in the latest quarter. For instance, billionaire money manager David Tepper at Appaloosa Management significantly upped his stakes in Facebook, Amazon.com, and Alphabet, the parent of Google and YouTube. In fact, Tepper bolstered his positions in these three names by 52%, 43%, and 106% (more specifically, "GOOG"), respectively, during the third quarter.
Warren Buffett's company gets shown the door by billionaire money managers
But not every wildly popular stock found itself being bought. One company witnessed not one, nor two, but three high-profile billionaire money managers sizably reducing their positions in the third quarter. That company is Warren Buffett's Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), and it more specifically relates to the lower-share-price, smaller-voting-power Class B shares (BRK-B).
Who would dare sell stock in Warren Buffett's company? How about...
- Hamish Douglass of Magellan Asset Management: Douglass sold virtually his firm's entire stake, with 4,794,835 shares being sold, and a token 171 shares being kept. In total, this translates to the disposition of about $1 billion in Berkshire Hathaway B shares in Q3.
- Jim Simons of Renaissance Technologies: Jim Simons runs an extremely diversified and very active fund at Renaissance. During the third quarter, Berkshire Hathaway was one of the more than 1,100 companies Renaissance reduced its position in. Simons wound up selling 852,200 shares, leaving his widely followed fund with only 82,900 remaining shares of Berkshire's Class B stock. This sale totaled more than $177 million.
- Ken Griffin of Citadel Advisors: Billionaire Ken Griffin also runs a highly diversified hedge fund at Citadel. During the third quarter, Griffin and his team parted ways with 382,980 Berkshire Class B shares, leaving the fund with only 280,317 shares. This sale freed up about $80 million.
It's also worth pointing out that Wedgewood Partners, a longtime investment firm that had owned a stake in Berkshire Hathaway's Class B stock for more than 20 years, noted in its quarterly investment letter to clients in mid-October that it had fully sold its stake in Berkshire Hathaway. I estimate this sale to have been worth about $123 million (i.e., we don't know at exactly what average price Wedgewood disposed of its stake).
Why are high-profile money managers losing faith in Buffett?
What's with the sudden loss of confidence in one of the greatest investors of our time?
Well, for one, Buffett has silently signaled that he isn't all that confident in the stock market, at least for the time being. Even though the Oracle of Omaha has professed his preference of a holding period of "forever," it's very telling that Berkshire Hathaway's cash pile hit an all-time record high of $128.2 billion in the most recent quarter. Buffett has previously suggested that he'd prefer Berkshire's cash balance to be closer to $30 billion, yet it's well over four times that amount. This suggests that Buffett doesn't view any companies as particularly good values at the moment and has, instead, continued to hoard cash. This cash is doing no good to shareholders who are expecting superior returns.
To build on this point, Berkshire Hathaway has also been a net seller of stocks recently, and has substantially cut back on its share repurchases, despite its cash pile. This further sends home the idea that stocks appear pricey in the eyes of Buffett and his team, and that even his own company, Berkshire Hathaway, is too pricey to repurchase a substantial number of shares.
Big-time money managers might also be leery of Buffett's recent track record. To be clear, all investors are fallible, even the great Warren Buffett. But in recent years, Buffett has picked some true underperformers, including Kraft Heinz, IBM, and Teva Pharmaceutical Industries, the latter of which was chosen by someone on Buffett's investment team, and not the Oracle of Omaha himself. Nevertheless, these losses reflect poorly on Buffett and may help to explain why billionaire money managers are shying away from Berkshire Hathaway's Class B stock.
Of course, it's also important to understand that, despite underperforming the market from time to time, Buffett always seems to find a way to make money for his investors. Though Berkshire Hathaway's B shares may be out of favor now, I wouldn't expect it to stay that way for very long.