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Warren Buffett Has Spent $12 Billion on This Stock in 2021

By Matthew Frankel, CFP® – Aug 18, 2021 at 6:21AM

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The billionaire investor apparently thinks this is the best place to put Berkshire Hathaway's capital to work.

To the surprise of many investors, Berkshire Hathaway (BRK.A -1.25%) (BRK.B -1.31%) hasn't exactly been actively buying stocks over the past year or so. However, CEO Warren Buffett, who controls the bulk of the company's $300 billion stock portfolio, has been deploying billions of capital into one particular stock. In this Fool Live video clip, recorded on Aug. 9, 2021, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss what it is, and why it might look so appealing.

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Jason Moser: Matt, I think one of the things that it has been a big point of conversation in regard to Berkshire Hathaway is not just this quarter, but it's been many quarters now. Really, it's two things, talk of a dividend and talk of acquisitions. When is Berkshire Hathaway going to pay a dividend? When is Berkshire Hathaway going to make another meaningful acquisition? This all comes at the same time as the company is repurchasing a lot of its own stock. When I say a lot, they repurchased, I think close to 6 billion dollars' worth of its own stock in the second quarter alone. The first half of the year, that's over $12 billion in repurchases and it's basically on pace for what they did last year as well. We can go a number of different ways here, but at the end of the day, this is a business, it's finding more value in itself than it feels like it's finding anywhere else, I don't really begrudge that. You can argue whether there's other better opportunities out there, but clearly, they feel like that's where the most value is these days.

Matt Frankel: I think a lot of investors feel like I do, like I want Berkshire to do something with its cash.

Moser: Right.

Frankel: It doesn't necessarily have to acquire a business, it doesn't necessarily have to put it in the stock market. It can buy back shares if that's where it sees the value, I'm totally fine with them doing that. If that's where they see the value, you mentioned over $12 billion in the first half of the year. This is a company that until a few years ago wasn't really buying back stock at all because they had an outdated buyback program for a while.

Moser: They changed the standard too, at some point the standard fell below, I think it was what? 1.2 or 1.1 times book value, and that was their line, where they felt that's when they can start buying back. But then they changed that and it basically just said wherever Warren and Charlie feel like there's value there they're going to go ahead and greenlight it.

Frankel: Now, it says that whenever Buffett and Munger agree that it's trading for a significant discount, that's how they put it to its intrinsic value. If both Buffett and Munger agree and they leave at least $30 billion in reserves, then they could buy back share whenever they want. Right now, Berkshire has, even after all those buybacks, a $144 billion in cash. There's a little bit of wiggle room left. They could have bought back a lot more. Berkshire actually breaks down the buybacks by months in its quarterly reports.

Moser: Yeah. I did notice that.

Frankel: You could see like when they thought it was a particularly good deal and it's not always when the share prices are lowest. This time, they apparently thought June was the biggest buy back month of the quarter. Wasn't necessarily, the share price was the cheapest, it wasn't. It's just based on a combination of the share price and what's going on with their businesses. Buffett sits in office all day and tries to calculate this stuff, no one knows the secret sauce there. But they both apparently agree that the business is trading for a significant discount to the actual true value of the sum of the parts.

Moser: Yeah.

Frankel: They didn't make any major acquisitions in the second quarter. We know and I will talk about this in a second if you want, but they didn't really do a lot of stock buying in the second quarter. But they apparently thought that their own stock was the best place to put money to work. When you're considering investible universe of 5,000 stocks or whatever it is, that's saying a lot.

Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway (B shares) Stock Quote
Berkshire Hathaway (B shares)
$313.27 (-1.31%) $-4.16
Berkshire Hathaway (A shares) Stock Quote
Berkshire Hathaway (A shares)
$472,712.01 (-1.25%) $-5,963.54

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