Despite a record first-quarter loss for Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), there's little denying that Warren Buffett is one of the greatest investors of our time. He's created close to $400 billion in value for Berkshire's shareholders over many decades, and he's handily outperformed the S&P 500 (inclusive of dividends) by more than 2,700,000% since 1964.
As a general rule, when Warren Buffett buys or sells a stock, Wall Street and retail investors tend to pay close attention. That's why the filing of Form 13F with the Securities and Exchange Commission last Friday, May 15, was so anticipated.
The Oracle of Omaha has been a busy bee in 2020
Form 13F provides a snapshot of what asset managers with more than $100 million under management owned as of the end of the previous quarter (in this case, March 31, 2020). Put another way, it's a means of seeing what the brightest minds on Wall Street were up to during the fastest bear market correction in history.
For Buffett, who was sitting on a near-record $128 billion in cash to enter 2020, the expectation was that he would be an active buyer with the market in a serious downdraft. However, Berkshire Hathaway's 13F showed quite the opposite, with a total of 19 stocks (yes, nineteen) either being pared down or completely sold out of during the first quarter.
Keep in mind the Oracle of Omaha has been a busy bee in the weeks subsequent to the end of the first quarter. We've seen some modest bank stock selling, along with Buffett completely exiting positions in all four major airlines. But since none of these transactions occurred prior to the March 31 cutoff, they're not being accounted for in the latest 13F filing. We'll see this activity accounted for when Berkshire releases its second-quarter snapshot in mid-August.
Buffett sold a lot of stocks in the first quarter
What did Buffett sell, exactly? Here's the full rundown, listed in descending order by total shares sold:
- Goldman Sachs (NYSE:GS): 10,084,571 shares sold
- Sirius XM: 3,857,000
- JPMorgan Chase: 1,800,499
- Synchrony Financial: 675,000
- American Airlines Group: 591,000
- Liberty Global: 481,000
- DaVita: 470,000
- Teva Pharmaceutical Industries: 460,000
- General Motors: 319,000
- Travelers Companies (NYSE:TRV): 312,379
- Liberty Sirius XM Group: 240,000
- Phillips 66 (NYSE:PSX): 227,436
- Axalta Coating Systems: 194,000
- Verisign: 137,132
- Liberty Latin America: 84,062
- Suncor Energy: 70,000
- Southwest Airlines: 6,500
- Biogen: 5,425
- Amazon: 4,000
This selling activity is not the hallmark of a passive investor
The first thing that stands out about a vast majority of this selling is that it's very weird and not what we're used to seeing from a historically passive investor.
Don't get me wrong, some of this selling was deliberate, as I'll touch on in a moment. But as an example, it's unusual to see Buffett's company selling 5,425 shares of Biogen and 70,000 shares of Suncor Energy after adding both names to the portfolio during the sequential fourth quarter. Berkshire Hathaway typically builds up new positions over many quarters, so to see token pare-downs during a period where valuations appeared to be improving significantly, and following their initial addition in Q4 2019, is rather odd.
One possible explanation for these multiple small sales is that Buffett may not have been behind many of them. Rather, we might be seeing the effects of Todd Combs and Ted Weschler exerting more direct control over Berkshire's investment portfolio. Combs and Weschler are Buffett's famed "investing lieutenants" who control a percentage of the company's investable assets.
Though it gets tougher each year to identify exactly what stocks Buffett specifically added to his company's investment holdings, this selling activity is not his hallmark.
Some stock sales were clearly deliberate
However, some of this selling was deliberate and expected. For instance, Berkshire Hathaway has been telegraphing for about two years now that it would be parting ways with integrated oil and gas giant Phillips 66, and it wound up doing exactly that during the first quarter. As a reminder, Buffett invested $10 billion into Occidental Petroleum last year to aid with Occidental's purchase of Anadarko. With Buffett seemingly choosing a new horse in the oil industry, it all but sealed Phillips 66's fate in Berkshire's portfolio.
Likewise, Buffett and his team said goodbye to insurance giant Travelers. After selling nearly all of Berkshire's stake in the company during the fourth quarter, the writing was on the wall that Travelers would be getting the boot. Though Travelers remains profitable, lower yields will likely hurt its interest-earning capacity on its float (i.e., the difference between premium collected and claims paid) for the foreseeable future.
Another move that appeared deliberate was the significant paring down in Goldman Sachs. In just two quarters, Berkshire has gone from owning in excess of 18 million shares to just 1.92 million. It's no secret that Goldman Sachs is a cyclical financial services company that tends to do its best when the U.S. and global economy are firing on all cylinders.
With the outlook for mergers and acquisitions fairly bleak at the moment, Buffett and his team may simply view other opportunities in the financial sector as more attractive.