Few investors have a knack for making money on Wall Street quite like Berkshire Hathaway (BRK.A -0.37%) (BRK.B -0.43%) CEO Warren Buffett. Without using any fancy charting tools or predictive software, the Oracle of Omaha has doubled up the average annual total return, including dividends paid, of the benchmark S&P 500 since he became CEO (19.8% versus 9.9%). On an aggregate return basis, the 3,787,464% gain for Berkshire Hathaway's Class A shares (BRK.A), through Dec. 31, 2022, is 153 times better than the S&P 500's return, including dividends.
It's this phenomenal track record that has new and tenured investors paying close attention to what Warren Buffett and his investing lieutenants, Todd Combs and Ted Weschler, are buying and selling during the current bear market.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Buffett and his team have put plenty of cash to work during the current bear market
The Oracle of Omaha put tens of billions of dollars to work when all three major U.S. stock indexes entered a bear market in 2022. One stock that's been consistently purchased since the beginning of last year is Occidental Petroleum (OXY 0.36%).
Occidental is an integrated energy stock that generates most of its revenue from its upstream drilling segment. With Berkshire Hathaway purchasing over 208 million shares of Occidental, the belief has to be that oil prices will remain above their historic average.
This thesis is backed by Russia's invasion of Ukraine, along with three years of capital underinvestment from global energy majors because of pandemic-related demand uncertainty. If the global energy supply chain remains broken, it would seemingly be a positive for the spot price of West Texas Intermediate oil.
Warren Buffett has also been actively adding to Berkshire Hathaway's largest holding, tech stock Apple (AAPL -0.09%). Even though Buffett has never been much of a research buff when it comes to high-tech companies, Apple has made it easy on the Oracle of Omaha by checking all the appropriate boxes.
Apple is one of the most-recognized brands in the world, it has an exceptionally loyal customer base, and its innovative capacity helped generate more than $109 billion in operating cash flow over the trailing 12 months. Whether it's the physical products that endeared users to the brand (iPhone, Mac, and iPad), or the company's ongoing pivot to subscription services, it's very clear that Apple is a company that consumers trust.
I'd be remiss if I didn't also add that Apple has what's arguably the most-impressive capital-return program on the planet. Despite being beat out by Microsoft for the largest nominal-dollar annual dividend, Apple takes the crown for having repurchased well over $550 billion worth of its common stock since the beginning of 2013.
Warren Buffett and his team have also been avid buyers of media stock Paramount Global (PARA -2.44%) during the current bear market. It's not uncommon for ad-driven operating models to come under pressure when the risk of a U.S. recession rises. There's no question that Paramount's legacy TV Media segment is contending with some level of weakness tied to an advertising slowdown.
But Buffett and his investing crew are looking past what's likely nothing more than a minor bump in the road for Paramount Global. The company's streaming subscriber count has been rocketing higher, its film division gained new life after the release of Top Gun: Maverick last summer, and Pluto TV is perfectly positioned to thrive as the leading ad-supported, free streaming service. Best of all, Berkshire Hathaway is netting a high yield from Paramount while it patiently waits for the ad environment to rebound.
Image source: Getty Images.
The No. 1 stock Warren Buffett buys during bear markets
Following Warren Buffett's buying and selling activity is typically made easy thanks to the requirement that money managers with at least $100 million in assets under management file Form 13F with the Securities and Exchange Commission (SEC) no later than 45 days following the end of a quarter. But not all of Buffett's buying and selling activity is necessarily going to be registered in its 13F.
For instance, I've previously pointed out that Berkshire Hathaway owns a specialty investment firm -- New England Asset Management -- as a result of its acquisition of General Re in 1998. This $5.4 billion portfolio can be tracked via New England Asset Management's 13F filings.
Berkshire Hathaway's earnings reports also contain valuable nuggets of data that you won't find in the company's 13F filings. Specifically, these earnings reports detail buying activity in what's easily Warren Buffett's No. 1 stock to buy during bear markets. That stock is none other than shares of his own company, Berkshire Hathaway.
The Oracle of Omaha has always believed that share repurchases are a powerful tool profitable businesses can use to build shareholder value. However, prior to July 17, 2018, Buffett and executive vice chairman Charlie Munger were nothing more than spectators on the buyback front.
The rules governing share buybacks required Berkshire Hathaway stock to trade at or below 120% of book value. For well over a half-decade prior to mid-July 2018, Berkshire's stock never fell to or below this level, which meant Buffett and Munger weren't able to repurchase any of their own company's stock.
On July 17, 2018, things changed. The Berkshire board passed new measures that took Buffett and Munger off the proverbial bench and allowed them to take some home run swings with their company's ever-growing treasure chest of cash. The new measures allowed Berkshire Hathaway stock to be repurchased without any ceiling as long as the company had at least $30 billion in cash, cash equivalents, and U.S. Treasuries available, and both Buffett and Munger agreed it was priced below intrinsic value.
Every single quarter since this change was made, Warren Buffett and Charlie Munger have bought back Berkshire stock. In fact, Berkshire Hathaway is the only stock the Oracle of Omaha purchased in each of the past two bear markets (the COVID crash and the current bear market). All told, $66 billion worth of Berkshire Hathaway stock has been bought back in less than five years.
As noted, buying back stock and steadily reducing the outstanding share count is an easy way to help long-term shareholders build wealth. Over time, existing stakeholders will own a larger percentage of the company as the number of outstanding shares declines.
Buybacks can make companies appear more attractive to fundamentally focused investors as well. Businesses with steady or growing net income that are decreasing their outstanding share count through buybacks should see their earnings per share climb as a result over time.
But most importantly, repurchasing $66 billion in stock is a crystal-clear message to shareholders and Wall Street that Buffett is confident in the business he and his team have built. Many of the companies in Berkshire's $328 billion investment portfolio are cyclical businesses that are positioned to thrive during long-winded periods of expansion. The Oracle of Omaha is well aware that the current turbulent environment will eventually pass -- and he's thus far been willing to bet $66 billion on that assessment.
