Since the beginning of 2010, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett has taken his fair share of criticism for not wildly outperforming the benchmark S&P 500. Through this past weekend, Berkshire Hathaway's stock was up 221% since 2010 began, with the S&P 500 offering a 277% total return, inclusive of dividends.
But when it comes to Warren Buffett, a decade might be considered a short time frame. Over the past 55 years, Berkshire Hathaway's share price has gained an aggregate of 2,744,062%, which is more than 2,700,000% better than the S&P 500, inclusive of dividends, over this same span.
One look at Buffett's investment in Apple, which has resulted in unrealized gains of $80 billion in four years, shows that he hasn't lost his touch. Investments like this have Wall Street and investors waiting on the edge of their seats to find out what the Oracle of Omaha has been buying and selling during one of the most volatile years on record for equities.
Buffett has been on a selling rampage in 2020
This past Friday, Aug. 14, following the closing bell, Berkshire Hathaway filed Form 13F with the Securities and Exchange Commission. Required of all companies with more than $100 million in assets under management, Form 13F provides an under-the-hood look at what's in Berkshire Hathaway's portfolio. Put another way, it allows us to see what Buffett and his investment team bought and sold between April 1 and June 30.
Similar to the first quarter, Buffett and his investment lieutenants, Todd Combs and Ted Weschler, were very busy bees. The second quarter saw one new position initiated, along with four existing positions augmented. Meanwhile, 18 separate stocks were either pared down or sold off in their entirety. In fact, dating back to the beginning of the year, Buffett and his team have sold shares in 32 separate stocks in six months.
The following nine stocks have been completely sold off:
- Phillips 66
- Travelers Cos.
- Goldman Sachs
- American Airlines Group (NASDAQ:AAL)
- Southwest Airlines (NYSE:LUV)
- United Airlines (NASDAQ:UAL)
- Delta Air Lines (NYSE:DAL)
- Occidental Petroleum
- Restaurant Brands International
Meanwhile, these five stocks have seen their positions in Berkshire's portfolio reduced by a double-digit percentage in the last six months:
- JPMorgan Chase
- Sirius XM
- Wells Fargo (NYSE:WFC)
- M&T Bank
- PNC Financial Services
These remaining stocks were all, at one point, pared down, with a small handful able to build their positions back up in the second quarter:
- Synchrony Financial
- Teva Pharmaceutical Industries
- Liberty Latin America
- Liberty Global (Class A)
- Liberty SiriusXM Group (Class A)
- Liberty SiriusXM Group (Class C) (was added to in Q2)
- General Motors
- Suncor Energy (was added to in Q2)
- Axalta Coating Systems
- Bank of NY Mellon
- Charter Communications
- U.S. Bancorp
Go ahead a take a deep breath after all that.
Four trends that stand out
You're probably asking yourself, why all the selling? I believe the answer boils down to four factors.
First, Buffett and his team are realizing that the coronavirus pandemic could be long-lasting and may well alter how certain industries operate. Buffett sold off American Airlines, Southwest Airlines, Delta Air Lines, and United Airlines specifically because he expects it to take years for the airline industry to recover. He's counting on the airlines to take on substantive amounts of debt to finance their operations during this crisis. For American Airlines, Southwest, Delta, and United, this means more cash flow going to service debt, along with no share buybacks or dividends for a long time. In other words, the reasons to own airline stocks are no more.
The same thesis can be applied to the restaurant industry (e.g., the Restaurant Brands International sale) and the oil industry (e.g., the Occidental Petroleum divestment). Occidental is a perfect example of a broken thesis, with the company's acquisition of Anadarko last year now straining its balance sheet and forcing the company to pay Berkshire dividends in common stock (Berkshire Hathaway owns preferred stock in Occidental).
Secondly, we witnessed Buffett and his team consolidating their investments in the banking industry. It's no secret that bank stocks are Buffett's favorite place to park Berkshire Hathaway's cash. Still, a low-inflation environment and the COVID-19 recession will wallop the earning power of most banks. This is what likely led the billionaire to significantly reduce his company's stakes in JPMorgan Chase and Wells Fargo.
Also, don't forget that Wells Fargo is attempting to move past a scandal that saw 3.5 million unauthorized accounts opened between 2009 and 2016 to fulfill aggressive cross-selling campaigns at the branch level. Buffett is a big fan of brands that nurture trust, and Wells Fargo breached that trust in 2016 and 2017.
A third trend you'll notice is a marked uptick in transactions that involve small purchases or sales on a quarterly basis. Slowly paring down a holding isn't Buffett's style, which suggests that Todd Combs and Ted Weschler are becoming increasingly involved in day-to-day portfolio oversight. The token selling in the first quarter in Biogen and Amazon are perfect examples of this.
Fourth and finally, Berkshire Hathaway's aggressive selling indicates that Buffett still sees little in the way of value in this market. Even though the Oracle of Omaha has deployed nearly $12 billion since the beginning of July, he remains a net seller of equities in 2020.