Berkshire Hathaway (BRK.A -0.24%) (BRK.B -0.34%) CEO Warren Buffett has quite the following on Wall Street, and it's not hard to understand why. Buffett's long-term investing approach and his ability to pick out businesses that offer plain-as-day competitive advantages has allowed Berkshire Hathaway's stock to run circles around the benchmark S&P 500 over the last 55 years.
Investors might harp about Buffett's subpar returns over the past decade relative to the S&P 500, but his company's stock has delivered a 2,744,062% return to shareholders over the past 55 years and created over $400 billion in market value in the process.
What I'm trying to say is, when Warren Buffett buys or sells a stock, Wall Street and retail investors pay close attention. Riding Buffett's coattails has proved to be a winning investment far more often than not.
But Berkshire Hathaway's recently filed Form 13F with the Securities and Exchange Commission reveals a stark reality that investors who love tracking Warren Buffett's every move must face: This isn't Warren Buffett's portfolio anymore.
Warren Buffett's portfolio presence is predominantly residual
Make no mistake about it, Warren Buffett remains the CEO of Berkshire Hathaway, and any big spending decisions are going to need his nod of approval. For instance, the $9.7 billion acquisition of pipeline and natural gas storage assets from Dominion Energy was 100% a Buffett call. The Oracle of Omaha has always been big on buying into cash-cow industries, and scooping up fee- or contract-based pipeline and storage solutions from Dominion to more than double Berkshire's share of the interstate natural gas transmission market is a typical genius move.
However, what we've witnessed in 2020 is far from typical for a Berkshire Hathaway investment portfolio. Through nine months, Berkshire has, at one time or another, pared down or completely sold out of 35 stocks.
I believe this outlier year has only one explanation: Todd Combs and Ted Weschler are now predominantly running the show.
Mind you, Buffett still has plenty of residual influence within his own investment portfolio. Apple is affably viewed by the Oracle of Omaha as Berkshire's "third business" and comprises a gargantuan $115.2 billion of $249.6 billion in invested assets. Known for his avoidance of tech stocks, Buffett appreciates Apple for its branding power, superior leadership team, and the company's willingness to aggressively repurchase its own stock.
Buffett is also behind the $28.5 billion held in Bank of America, $21.5 billion in Coca-Cola, and $17.7 billion in American Express. Coca-Cola and American Express are two of Buffett's most tenured holdings, while BofA has been a popular add, especially after the Federal Reserve Bank of Richmond gave Berkshire Hathaway the OK to increase its stake up to as much as 24.9%, should it choose to do so. That's almost $183 billion of the $249.6 billion invested that's directly tied to Buffett's investment activity, and none of these holdings should be going away anytime soon.
Face the facts: This is Combs' and Weschler's show now
However, the ramp up in buying and selling activity in 2020, coupled with what's being bought and sold, leaves little doubt that Buffett has willingly taken a back seat.
Take a gander at what Berkshire Hathaway opened a position in during the third quarter:
- Bristol Myers Squibb
This has all the hallmarks of being Combs' and Weschler's work. For example, Buffett probably has no clue what cloud-data warehousing company Snowflake does or how it makes money. Likewise, Buffett exited the telecom space years ago, signaling that he didn't favor its long-term prospects. There's no question he's not behind the T-Mobile purchase.
Even the Big Pharma stocks are unlikely to have been added by Buffett. Since exiting most of his stake in Johnson & Johnson in the early 2010s, the Oracle of Omaha has opted to avoid drug and device developers. He simply doesn't have the time to keep up with clinical trials or worry about finite periods of exclusivity on brand-name therapeutics or devices.
The thing is, we're seeing the influence of Combs and Weschler on the sell side, too.
We watched gold stock Barrick Gold get trimmed by 42% during the third quarter, which is exceptionally odd, given that it was initially added to Berkshire's portfolio in the sequential second quarter. Buffett has been critical of physical gold for decades and has never been one to increase then decrease his stake from one quarter to the next.
There's also the magnitude of these sales. Warren Buffett has been very clear in previous interviews that he's not the type of investor to slowly pare down a holding. If the Oracle of Omaha loses favor in a company, it tends to get the heave-ho within a few quarters. But over the past three quarters, we've watched as well over a dozen holdings have been pared down by a single-digit percentage. Again, nothing that Buffett would ever do as a portfolio manager.
The point is, Buffett is a passive player in his own investment portfolio these days. He still holds enormous clout as CEO, and no big deals are getting done without his approval. But his time as a day-to-day portfolio manager are gone. These 13F filings pretty clearly show a passing of the torch to his investing lieutenants, and that's something Buffett's followers are going to have to accept.