As we saw this past weekend, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett knows how to captivate an audience. Over the past 50 years, Berkshire's annual shareholder meetings have grown from a couple dozen people to an event that regularly draws in excess of 30,000 investing enthusiasts and shareholders.
The reason investors flock to Omaha, Nebraska is to hear the Oracle of Omaha discuss everything from his investment philosophy to the state of the U.S. economy and stock market. Since taking the reins at Berkshire in the mid-1960s, Buffett has led his company's Class A shares (BRK.A) to a total return of 3,974,186% as of the closing bell on May 5, 2023.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Riding Warren Buffett's coattails has been a profitable venture for patient investors for nearly six decades, and it's made all the easier due to required quarterly filings by Berkshire Hathaway.
Berkshire Hathaway's 13Fs are invaluable to long-term investors
No later than 45 days after the end of a quarter, money managers with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides a snapshot of what the brightest minds on Wall Street bought and sold in the most recent quarter, as well as what stocks, exchange-traded funds (ETFs), and options positions they continue to hold. For decades, Berkshire Hathaway's 13Fs have been telling.
What's plainly evident from Berkshire's required quarterly filings is that the Oracle of Omaha and his investing lieutenants, Todd Combs and Ted Weschler, absolutely love tech stock Apple (AAPL -0.35%). Known as one of Berkshire's "four giants," Apple accounts for approximately 45% of the company's invested assets.
Apple is a business that checks all the appropriate boxes for Warren Buffett and his team. It has exceptional branding power, a very loyal customer base, and a management team that can be trusted. CEO Tim Cook allows his company's innovations to do the talking, with iPhone commanding about half of all U.S. smartphone market share and Apple's services segment continuing to grow into a larger percentage of total sales.
Apple is an absolute beast in the capital-return department, too. Following its recent dividend increase, it's on track to dole out roughly $15.2 billion in dividend income over the next 12 months. What's more, Apple has repurchased $586 billion worth of its common stock since the start of 2013.
Berkshire Hathaway's 13Fs also show that Warren Buffett and his investing lieutenants have aggressively added to energy stocks. Chevron (CVX 0.37%), which was first purchased in the fourth quarter of 2020, and Occidental Petroleum (OXY -0.15%), which was initially purchased in the first quarter of 2022, have quickly become core holdings.
As of the end of 2022, energy was the third-largest sector by weighting in Berkshire Hathaway's investment portfolio. This is a pretty clear indication that Buffett, Combs, and/or Weschler anticipate the spot price for crude oil will remain above its historic average. Though Chevron and Occidental are both integrated operators, they generate their most lucrative margins from drilling.
Furthermore, higher energy-commodity prices are helping Chevron and Occidental clean up their balance sheets and reward their shareholders. Chevron and Occidental have increased their respective quarterly dividends and announced share-repurchase programs.
Image source: Getty Images.
The Oracle of Omaha has spent over $70 billion buying one stock (and you won't find it in Berkshire's 13Fs)
But you might be shocked to learn that Berkshire Hathaway's 13Fs fail to tell the complete story of where Buffett and his team are deploying their company's cash. To get that full story, investors will also need to dive into Berkshire's quarterly operating results.
Despite owning sizable stakes in companies like Apple, Chevron, Occidental Petroleum, and Bank of America, none of these holdings comes close to the amount of cash Warren Buffett and Executive Vice Chairman Charlie Munger have spent buying back shares of Berkshire Hathaway stock since mid-July 2018.
Prior to July 17, 2018, the only way Buffett and Munger could proceed with share repurchases was if Berkshire Hathaway's stock traded at or below 120% of book value (i.e., no more than 20% above book value). For years leading up to this mid-July 2018 date, Berkshire stock never fell to or below this line-in-the-sand valuation level, which meant no buybacks were undertaken.
On July 17, 2018, Berkshire Hathaway's board passed new rules governing share repurchases that gave Buffett and Munger more freedom to work their magic. The new rules for buybacks had two simple criteria: As long as Berkshire Hathaway had at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet; and both Buffett and Munger agree shares are trading below their intrinsic value, repurchases can be undertaken without any ceiling.
During the first quarter of 2023, Buffett and Munger gave the green light to repurchase 5,103 Class A shares and 6,716,864 Class B shares (BRK.B). The cost to buy back these shares came to $4,439,586,013! This latest $4.4 billion buy brings the total amount of repurchases since July 17, 2018 to more than $70 billion. For context, that's more than Berkshire's cost basis for Apple, Chevron, and Occidental Petroleum combined!
Since Berkshire Hathaway doesn't pay a dividend, rewarding stakeholders via buybacks serves a number of purposes. Perhaps the most obvious is that it reduces the number of shares outstanding, which for businesses with steady or growing net income should provide a lift to earnings per share. In other words, buybacks are making Berkshire Hathaway stock even more attractive to fundamentally focused investors.
Another benefit to Berkshire Hathaway's aggressive buyback activity is that it's increasing the ownership stakes of existing shareholders. If the outstanding share count falls, each remaining share becomes that much more valuable. For instance, Apple's incredible repurchase program has increased Berkshire Hathaway's ownership stake in the company without Buffett or his team having to lift a finger.
The third purpose served by Warren Buffett and Charlie Munger overseeing more than $70 billion in share repurchases in under five years is to drive home the idea that Berkshire's dynamic duo strongly believe in the company over the long term. Most of the companies Berkshire Hathaway invests in or acquires are cyclical, which means they'll ebb and flow with the U.S. economy. But with periods of expansion lasting substantially longer than recessions, Buffett and his team have set Berkshire up for decades of future success.
Without question, there's no stock Warren Buffett loves purchasing more than his own company.
