Berkshire Hathaway (BRK.A -0.56%) (BRK.B 0.07%) CEO Warren Buffett has a way of commanding the attention of a room. Since the Oracle of Omaha began running Berkshire Hathaway's annual shareholder meetings in 1973, attendance has grown from a couple dozen people to more than 30,000 investors and shareholders annually in Omaha, Nebraska.
The reason? Buffett has an uncanny ability to outperform Wall Street. Since becoming CEO in the mid-1960s, Buffett has overseen a greater than 4,100,000% rise in Berkshire Hathaway's Class A shares (BRK.A), as of the closing bell on June 7, 2023. Through the end of 2022, Berkshire stock had outpaced the total return, including dividends, of the benchmark S&P 500 (^GSPC 1.26%) by a factor of 153.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Surprise! Warren Buffett has a secret investment portfolio
Following the Oracle of Omaha's trading activity has been a moneymaking proposition for more than a half-century, and it's made easy thanks to required quarterly filings (Form 13F) with the Securities and Exchange Commission (SEC). But you might be surprised to learn that not all of Berkshire Hathaway's trading activity can be found in its 13Fs.
A quarter century ago, in 1998, Berkshire Hathaway agreed to acquire reinsurance giant General Re for the tidy sum of $22 billion. Although the crown jewel of this deal was Gen Re's reinsurance operations, it also owned a specialty investment firm called New England Asset Management (NEAM). When Buffett's company purchased Gen Re, it also became the owner of NEAM.
SEC reporting standards require funds with at least $100 million in assets under management to file a 13F no later than 45 days following the end of a quarter. As recently as the end of 2022, New England Asset Management had well over $5 billion in invested assets, which means it's required to file a 13F and provide a snapshot to investors of what it's been buying, selling, and holding.
Although Warren Buffett doesn't oversee NEAM's portfolio, the investments NEAM makes are, ultimately, owned by Berkshire Hathaway. In other words, New England Asset Management is Warren Buffett's secret portfolio.
Image source: Getty Images.
A guaranteed moneymaker is the new top holding in Buffett's secret portfolio
Last week, I highlighted a rather ominous warning offered by Warren Buffett's hidden portfolio. Namely, New England Asset Management's investment team went on a big-time selling spree during the first quarter and reduced the value of invested assets from around $5.4 billion, as of Dec. 31, 2022, to just $671.6 million by March 31, 2023.
When 2022 came to a close, four brand-name stocks comprised a whopping 86% of NEAM's invested assets. Listed in order from highest to lowest weighting, Apple, Chevron, Bank of America, and HP accounted for the bulk of invested assets. But during the first quarter, NEAM jettisoned its entire HP stake, pared down close to 100% of its Apple position, and reduced its holdings in Chevron and Bank of America by 98%.
Considering that Warren Buffett's secret portfolio is run by like-minded long-term investors, this selling spree appears to indicate that NEAM's investment team feels stocks are pricey and/or potentially at risk of heading lower.
But there's another very interesting angle to New England Asset Management cleaning house. Specifically, it allowed a brand-new holding to ascend to the top spot within Warren Buffett's secret portfolio. This holding, which makes up 15.6% of NEAM's $671.6 million of invested assets (as of Dec. 31, 2022), is none other than the SPDR S&P 500 ETF Trust (SPY 1.24%).
This highly popular exchange-traded fund (ETF) has been nothing short of a guaranteed moneymaker for investors with a long-term mindset.
Patience is a powerful tool
The SPDR S&P 500 ETF Trust is an ETF that attempts to mirror the performance of the market-cap-weighted S&P 500.
To be crystal clear, the S&P 500 and its tracking ETFs do have down years. The benchmark index has undergone 39 separate double-digit corrections since the start of 1950, which works out to a sizable decline, on average, every 1.88 years. If this data shows anything, it's that corrections and bear markets are a perfectly normal part of the investing cycle.
On the flipside, every previous correction or bear market in the S&P 500 was eventually cleared away by a bull market. We may not know the specifics of how long market downside will last or how steep the decline will be, but history has conclusively shown that the major stock indexes, like the S&P 500, rise over time.
But you don't have to take my word for it. Market analytics company Crestmont Research publishes a report each year examining how powerful of an ally time can be for investors.
Back-testing to 1900, Crestmont analyzed how much a hypothetical investor would have made, including dividends, if they'd purchased an S&P 500 tracking index and held that investment for 20 years. Crestmont examined every single rolling 20-year period through 2022, leaving it with 104 ending years of datapoints (1919-2022).
Here's the kicker: All 104 rolling 20-year periods generated a profit for investors. It genuinely hasn't mattered when you've purchased an S&P 500 tracking index, so long as you've held that position for 20 years. If you simply remained patient, you profited. It's that simple.
Best of all, most of these 104 ending years made investors a boatload of money. Whereas you can count on one hand how many ending years led to an annualized total return of 3% to 5%, more than 50 ending years produced annualized total returns of between 9% and 17.1%. In other words, mirroring the S&P 500 hasn't just put a few bucks in investors' pockets -- it's helped them handily outpace the U.S. inflation rate and build serious wealth.
