When Warren Buffett and his team at Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) make an investment, the world pays attention.
There's good reason, too. Buffett has a long track record of outperforming the market. Since he took over as chief executive officer of the textile company in 1965, Berkshire Hathaway shareholders have seen the value of their stock increase at an annualized rate of 19.8%, double that of the S&P 500.
One of the best sources to find what Buffett and his investment managers, Todd Combs and Ted Weschler, are buying and selling is the quarterly portfolio disclosures with the Securities and Exchange Commission (SEC). Institutional investors managing over $100 million in assets must disclose their holdings at the end of every quarter, and Berkshire's stock was worth about $318 billion at the end of the third quarter.
But the three biggest investments Buffett and the team made last quarter won't show up on Berkshire's most recent disclosure. Here's what they are.
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U.S. Treasury bills: $29 billion
By far, the biggest change in Berkshire Hathaway's holdings last quarter was a shift in its U.S. Treasury position.
You'll have to dig into Berkshire Hathaway's balance sheet to find this one. But the company's short-term investments in U.S. Treasury bills increased by $29 billion last quarter. There was a clear shift from its cash and cash-equivalents balance, which decreased $19 billion.
It's important to note what's really going on under the hood here. Berkshire's cash and cash equivalents include any holdings of U.S. Treasury bills maturing within three months. Its short-term investments in U.S. Treasury bills include bonds maturing in more than three months, but still within a year. So, the net increase in Treasuries was closer to $10 billion, still the company's biggest investment last quarter.
There are two reasons for the shift. First, it's a clear sign Buffett, Combs, and Weschler don't see a lot of stocks worth buying right now. In fact, Berkshire has been a net seller of stocks for each of the last four quarters.
Second, the yield on the six-month Treasury bill offers a slightly better return than the three-month bill with limited increase in risk. Considering that Berkshire is now holding a record amount of cash and generating billions in free cash flow every quarter, parking funds in slightly longer-dated Treasuries to lock in higher yields was a prudent move. It certainly paid off, as rates have fallen since the end of September, driving bond prices higher.
Mystery stock(s): $1.7 billion
The SEC will occasionally permit confidential treatment for new stock purchases, exempting them from the required disclosure. Berkshire received an exemption last quarter, and now its biggest stock purchase during the third quarter is a mystery to investors.
There are some things we do know about the mystery stock(s), though. First, Buffett and his team invested nearly $1.7 billion into undisclosed stocks last quarter. The only other new purchase disclosed was a small stake in Sirius XM (SIRI). That purchase cost, at most, $75 million. Meanwhile, Berkshire's third-quarter report shows $1.7 billion in equity purchases last quarter.
Second, it's very likely a business in the financial sector. Berkshire saw the cost basis of its holdings in equity securities in the bank, insurance, and financial sector increase $1.2 billion in the third quarter. At the same time, it sold parts of its stakes in several insurance companies.
The fact that Berkshire requested confidentiality on the stock suggests it's looking to increase its position this quarter. If the company had to disclose its new holding, it would very likely send shares of the stock higher, which would have made it less attractive to buy more shares.
Berkshire Hathaway: $1.1 billion
The third biggest purchase for Buffett was his own company's stock.
During the third quarter, Berkshire Hathaway repurchased $1.1 billion worth of shares. That marks 21 straight quarters in which the company has bought back shares, with purchases totaling more than $72 billion in that time.
The Berkshire board revisited the long-held policy that management can only repurchase shares of the company when the stock trades below 120% of book value. After a long spell during which Buffett didn't have the authority to repurchase shares, the board agreed to let management buy back shares as long as both Buffett and the late Charlie Munger agreed that the stock traded below its intrinsic value.
There's been no stock Buffett likes to buy more since the change. And it's a good bet he'll continue to buy back shares as he has found few other stocks with much appeal in 2023.
Consistent buybacks make Berkshire Hathaway an appealing stock. All else being equal, fewer shares outstanding leads to higher earnings per share. And considering the company's net income is expected to climb over time, the buyback makes Berkshire shares that much more of a value for investors.
