There's no denying that Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett is one of the greatest investors of all time. In a span of about 65 years, the Oracle of Omaha, as he's affably known, has grown his net worth from $10,000 to more than $86 billion, as of this past Wednesday, Nov. 27. And if not for his substantial charitable contributions, Buffett's net worth would actually be tens of billions of dollars higher than it is now.
He's also been responsible for putting a pretty penny into the pocketbooks of his shareholders. Even though Berkshire Hathaway doesn't pay a dividend, Berkshire has generated well over $400 billion in market value for its shareholders over the long run. Investors who bet on Buffett have generally done well over the years.
Berkshire Hathaway CEO Warren Buffett at his company's annual shareholder meeting. Image source: The Motley Fool.
Buffett has taken his fair share of criticism of late
However, we've seen something of a rarity in recent months, with big-time money managers losing faith in the Oracle of Omaha. During the third quarter, Magellan Asset Management, Renaissance Technologies, and Citadel Advisors all significantly reduced their stakes in Berkshire Hathaway's Class B shares (BRK-B).
We also seen investment firm Wedgewood Partners completely sell out of its stake in Berkshire Hathaway, which it had held for more than 20 years. Chief Investment Officer David Rolfe was particularly critical of Buffett's investment track record over the past decade. In a quarterly letter to investors, Rolfe chastised Buffett for buying heavily into underperformers such as IBM and Kraft Heinz, and not boosting positions in Visa and Mastercard, which should have been viewed as slam-dunk investment opportunities.
Wall Street has also been critical of Berkshire Hathaway's growing cash hoard, which stood at a record $128.2 billion at the end of the third quarter. The simple fact that Buffett hasn't given the green light for any needle-moving acquisition in three and a half years has potentially signaled that one of the greatest investors of all time doesn't view any companies as being a good value right now. Even I took that to be a silent warning to investors and a reason to be cautious.
But what if the Oracle of Omaha is actually more bullish than Wall Street realizes?
Image source: Getty Images.
This data point suggests Buffett is still a big-time stock market bull
A little more than two weeks ago, Berkshire Hathaway filed Form 13F with the Securities and Exchange Commission, as it's required to do 45 days following the end of a quarter. Form 13F provides a snapshot of the portfolio holdings of any investment firm with more than $100 million in assets under management, and it effectively allows Wall Street and investors to see what the brightest minds on Wall Street were up to in the most recent quarter.
During the third quarter, Berkshire Hathaway wound up opening two new positions in Occidental Petroleum and RH, while paring down a few positions, including Wells Fargo and Phillips 66.
But the real story is the make-up of Berkshire Hathaway's portfolio. Buffett's company ended the third quarter with exactly 15% of invested capital tied up in consumer staples -- companies that sell essential items that have relatively constant demand, such as toilet paper, toothpaste, and detergent. This 15% marks at least a two-decade low for Berkshire Hathaway, which had as much as 39% of invested capital tied up in consumer staples in the second quarter of 2016, and 45.5% as of the third quarter of 2010.
Consumer staple stocks, such as longtime holding Coca-Cola, tend to bring a lot of predictability to the table, but they're often mature, boring business models. Don't get me wrong -- there's absolutely nothing wrong with owning a stake in a boring stock, as they're generally safe long-term investments. However, consumer staples tend to underperform when the U.S. economy is operating on all cylinders, and they'll outperform when concerns mount. The simple fact that Buffett has been methodically reducing his exposure to a slower-growing sector of the market for three years now suggests that he might be more optimistic about stocks than we're giving him credit for.
Image source: Apple.
Another potential clue that Buffett foresees stock market upside is his enormous exposure to technology kingpin Apple (AAPL -0.35%). Buffett has never been one to force diversification, and it certainly shows, with Apple comprising about 28% of Berkshire Hathaway's invested assets. While the Oracle of Omaha doesn't have the best track record when it comes to investing in tech stocks, he firmly believes in Apple's superior branding, its push into high-margin services, and the company's efforts to reward shareholders through share buybacks and a growing dividend.
I'll continue to be the first to admit that Buffett's lack of acquisitions in recent years has been a head-scratcher, and it's sure to instill doubt among investors. But this clear multiyear shift in Berkshire's portfolio away from highly defensive investments shouldn't go unnoticed.
