Warren Buffett may very well be the most successful investor alive today. As CEO of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), Buffett has led his company to an annualized return of 20.3% over the past 55 years. For some context here, that's more than double the 10% compound annual return of the broad-based S&P 500, inclusive of dividends, over this same stretch. It's led to a greater than 2,700,000% aggregate outperformance of the benchmark index since the beginning of 1965.
Warren Buffett's knack for picking companies with sustainable competitive advantages and holding onto them for long periods of time is legendary.
But you might be surprised to learn that not all "Buffett stocks" -- a name often informally assigned to any company in Berkshire Hathaway's investment portfolio -- were actually bought by the Oracle of Omaha himself. In some instances, these purchases were the work of Buffett's investing lieutenants, Todd Combs or Ted Weschler.
The following five Buffett stocks aren't stocks that Buffett bought.
Though Warren Buffett admires Amazon (NASDAQ:AMZN) CEO Jeff Bezos and likely regrets not buying into the high-growth company earlier, Berkshire's 533,300-share stake in the e-commerce giant was not his doing. Either Combs or Weschler bought the initial stake and added to it in 2019.
The fact that Buffett isn't the mastermind behind the Amazon purchase really shouldn't surprise anyone. Even though Amazon has been wildly successful in the e-commerce space -- it's gobbled up an estimated 44% of all U.S. online sales, according to analysts at Bank of America/Merrill Lynch -- the company's pathway to a sustainable retail moat wasn't truly apparent until the past couple of years. Buffett is big on moats, and Amazon never had the telltale traits of a retailer that users would flock to in droves.
Furthermore, Amazon's infrastructure cloud service is completely off of Buffett's radar. He may dabble in a tech stock here and there, but cloud services aren't something Buffett would specifically invest in.
Teva Pharmaceutical Industries
With few exceptions, anytime a drug stock is added to Berkshire Hathaway's portfolio, it's going to be the result of Combs or Weschler. This means generic and brand-name drugmaker Teva Pharmaceutical Industries (NYSE:TEVA) is a Buffett stock, but not a Buffett pick. Just in case you needed more confirmation, Buffett noted in an interview with CNBC's Becky Quick in February 2018 that "Teva's not a stock I bought. It's one of the other two [Combs or Weschler]."
Although I find Teva to be a big-time value at its current price, there are two dead giveaways that Buffett would never have picked this stock directly. First, Buffett doesn't have the time, energy, or apparent interest to follow news about clinical trials. He probably also views drugmakers as being in a disadvantageous position because the exclusivity on their brand-name drugs is finite.
Secondly, Teva's previous management team left a lot to be desired. While current CEO Kare Schultz has been fantastic and reduced the company's net debt by $10 billion in three years, the previous management team lost the trust of shareholders and ballooned the company's debt load. Teva simply doesn't meet the criteria that Buffett looks for in a stock.
Wall Street was excited in mid-February when Berkshire Hathaway filed a 13F with the Securities and Exchange Commission that revealed Buffett's company had taken a $549 million stake in grocery chain Kroger (NYSE:KR). Considering that the coronavirus disease 2019 (COVID-19) was becoming a real worry for most people in mid-February, this had the look of a front-running Buffett pick.
However, Buffett admitted via CNBC that he wasn't the buyer. Again, this shouldn't surprise too many investors, as Buffett has long been shy about putting his company's money to work in highly competitive retail settings where differentiation is tough to find. As a reminder, one of Buffett's worst investments over the past decade was British grocer Tesco, so we can't blame him for being gun-shy about grocers.
For what it's worth, Kroger has done well, even if Warren Buffett didn't add it himself. The Restock Kroger initiative, which relies on an improved omnichannel/digital presence to drive growth, was moving the needle before the pandemic. It was also a big positive in the first quarter, with digital sales rising 92%.
Investors' jaws hit the floor last week when cloud-based software-as-a-service provider Snowflake filed an amended S-1 with the SEC that noted Berkshire Hathaway was taking a $250 million position in its Class A stock via a private placement ahead of its initial public offering (IPO). Snowflake is arguably the hottest IPO of the year, but it's a near-certainty that this purchase is not Buffett's doing.
Buffett's scope of focus is predominantly confined to the financial sector (e.g., bank stocks and insurers) and brand-name consumer staples. Although he will invest outside this sphere on occasion, he's a stickler for being able to easily understand a business. I'm fairly confident that Buffett doesn't understand what Snowflake does and how it generates revenue, and I don't think he'd be able to explain the business in just one sentence.
Further, Warren Buffett's expertise is in analyzing asset-heavy businesses. Asset-light businesses like Snowflake, which rely on intangible assets and innovation as key drivers of valuation, aren't easy for Buffett to wrap his hands around.
Finally, it was certainly a shock to see Berkshire Hathaway pick up 20.92 million shares of gold-mining stock Barrick Gold (NYSE:GOLD) during the second quarter. With the Federal Reserve pledging to keep its federal funds rate at historic lows for years and unlimited quantitative easing likely to balloon the money supply, the table appears set for the price of physical gold to soar.
But there's just one problem: Buffett dislikes gold as an investment. For decades, Buffett has blasted gold for its lack of utility. As Buffett sees it, gold doesn't create anything; instead, it just takes up space and costs money to guard. Buffett's longtime negative views on the lustrous yellow metal all but assure that the Barrick Gold purchase was made by Combs or Weschler.
Based on the significant uptick in selling activity we've witnessed from Berkshire Hathaway's 13Fs this year, it would seem that Combs and Weschler are exerting a growing influence over the company's investment portfolio.