Warren Buffett doesn't have a big appetite for a lot of stocks lately. Berkshire Hathaway's (BRK.A -0.76%) (BRK.B -0.69%) most recent quarterly report indicated that Buffett and his team sold $7 billion worth of equities and bought just $1.7 billion of stocks. Meanwhile, Buffett now oversees a record cash pile of $157 billion, the vast majority of which he's put to work in short-term U.S. Treasuries.
While investors already knew some of what Buffett and his team have been selling in Berkshire's portfolio based on the company's third-quarter report and other filings with the Securities and Exchange Commission (or SEC), we finally got a glimpse of the exact changes they made last quarter with its 13F filing disclosing the company's holdings as of the end of September.
Well, almost all of the changes.
Berkshire Hathaway requested confidential treatment for at least one stock purchase last quarter, and the SEC granted it. So there's one mystery stock Warren Buffett and the team have been buying despite selling off a big chunk of stocks.
Image source: The Motley Fool.
The big sales in Buffett's portfolio
The biggest changes in Berkshire's portfolio were already known.
- Sold 10% of its stake in Chevron. We learned this from disclosures in the third-quarter earnings report. The portfolio held $18.6 billion worth of the company as of the end of September.
- Sold 15% of its stake in Hewlett Packard. We learned this from Form 4 disclosures requiring Berkshire to disclose changes in ownership for companies in which it holds a greater-than-10% stake. It ended September with $2.6 billion worth of shares but continued to reduce its position in October.
- Sold 100% of its position in Activision. While investors knew Berkshire no longer held Activision following its acquisition by Microsoft, it appears Buffett sold the remaining shares before the deal closed in October.
The 13F also revealed several positions where Berkshire completely closed out its positions in General Motors, Celanese, Johnson & Johnson, Procter & Gamble, Modelez, and United Parcel Service.
And some positions were trimmed, including:
- 66% of its Markel shares, leaving the company with shares worth $233.7 million at the end of the quarter
- 67% of Globe Life, leaving it with shares worth $185.4 million at the end of the quarter
- 5% of Amazon, leaving it with shares worth $1.3 billion at the end of the quarter.
- 5% of Aon, leaving it with shares worth $1.3 billion at the end of the quarter.
The portfolio also got a shakeup from Liberty Media's Atlanta Braves spin-off and reclassification of its tracking stocks.
It's worth pointing out that all of these newly revealed sales are relatively small. Berkshire didn't make any wholesale changes in its portfolio. After all, it only sold $7 billion worth of total stock out of a portfolio valued at $318 billion.
What is Buffett buying?
There was just one truly new stock Berkshire reported with its 13F. It bought 9.7 million shares of Sirius XM (SIRI).
The stake was worth about $44 million as of the end of the quarter, representing about 0.01% (1/10,000) of the total portfolio value. So this was not a big purchase by any means.
The vast majority of Berkshire's $1.7 billion in stock purchases last quarter went toward the new mystery stock(s) it's not disclosing.
We can get some clues from Berkshire's third-quarter earnings report. The company disclosed that the cost basis for its investments in banks, insurance, and finance equity securities increased by approximately $1.2 billion. Its sales of Globe Life, Markel, and Aon would knock that figure down somewhat, as well, so that lines up with the $1.7 billion in purchases.
One reason Berkshire might have requested that its newest holding remain confidential is that it wants to continue buying shares in the company. Since changes to its portfolio are so widely followed, any disclosures have the potential to send the price of shares much higher. Sirius XM shares notably climbed as much as 15% the day after Berkshire filed its 13F.
In other words, if you can figure out what Buffett and his team were buying last quarter, you could be able to invest ahead of the Oracle of Omaha.
What should you buy to invest like Buffett?
There are a lot of potential financial stocks Buffett could be buying. I'm not going to make any guesses about which one.
Instead, I'd suggest two courses of action for anyone interested in following Buffett's mystery investment.
- Buy shares in Berkshire Hathaway. This is simple and straightforward. You'll benefit from any changes in the portfolio as they happen.
- Buy shares of a financial sector index fund. The iShares U.S. Financials ETF (IYF -0.35%) holds investments in banks, insurers, and credit card companies. You should know that 13% of the portfolio is invested in Berkshire Hathaway, and it holds shares in a lot of companies Buffett and the team have sold off recently. Still, it's one of the easiest ways to add exposure to the financial sector, which Buffett is favoring right now.
The financial sector is currently trading at a relative value to the rest of the stock market. The iShares U.S. Financial ETF's portfolio, for example, trades at a price-to-earnings ratio (PE) of just 13.5x. There are likely a lot of candidates that could appeal to Buffett right now.
Sometimes, the simplest path is not to try to outsmart the smart money. Let Buffett find the gems and come along for the ride.
