In the nearly six decades Warren Buffett has led Berkshire Hathaway (BRK.A 0.68%) (BRK.B 0.93%), he's delivered close to a 4,900,000% aggregate return to his company's Class A (BRK.A) shareholders, and practically doubled the annualized total return, including dividends, of the broad-based S&P 500. With outsized returns of this magnitude, it should come as no surprise that Berkshire's annual shareholder meeting draws around 40,000 investors each year who want to hear the affably dubbed "Oracle of Omaha" speak about investing philosophy and the U.S. economy.
But while Berkshire's annual shareholder meetings are filled with nuggets of investing wisdom from Warren Buffett, they also often contain confessions.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
On Saturday, May 4, the Oracle of Omaha specifically called out two holdings that he and his top investment aides -- Ted Weschler and Todd Combs -- were selling during the March-ended quarter. Meanwhile, Berkshire's first-quarter operating results spilled the beans on another brand-name company that also looks to have been trimmed.
Apple: Approximately 115 million shares sold in the first quarter
Arguably the most surprising admission during Berkshire Hathaway's annual shareholder meeting was that Buffett and his team jettisoned approximately 115 million shares of tech stock Apple (AAPL 0.02%) during the March-ended quarter. We won't know the exact figure until Berkshire files its Form 13F with the Securities and Exchange Commission on May 15.
This is actually the second consecutive quarter that Berkshire's largest position by market value has been pared down by the company's brightest investment minds. The logic behind this recent selling likely has to do with corporate taxation. Whereas the roughly 10 million shares of Apple sold during the fourth quarter were to offset select investment losses, the capital gains Buffett's company recognized from selling 115 million shares of Apple in the first quarter may have to do with front-running fiscal policy changes in Washington, D.C.
At the moment, the peak federal corporate income tax rate is 21%. President Joe Biden has proposed increasing the peak rate to 28%. With higher tax rates likely in the future, Buffett has opined that investors won't gripe about locking in gains now at a lower corporate tax rate.
Despite selling around 125 million shares of Apple, combined, over the previous two quarters, the Oracle of Omaha has made clear that it's going to be a longtime holding for Berkshire Hathaway.
Although Apple's iPhone is the domestic leader in smartphone market share, and CEO Tim Cook is overseeing the steady transformation of his company to promote subscription services, you'd be hard-pressed to find a catalyst Buffett appreciates more than Apple's market-leading capital-return program.
Last week, Apple increased its quarterly dividend by $0.01/share -- Apple is set to dole out more than $15.4 billion in annual payouts to its shareholders -- and its board authorized up to $110 billion in additional share buybacks. Since the start of 2013, Apple has repurchased $674 billion worth of its common stock. Over time, these buybacks are incrementally increasing Berkshire's stake in the second-largest publicly traded company.
Image source: Getty Images.
Paramount Global: Sold all 63,322,491 shares in the first quarter
The second high-profile stock the Oracle of Omaha confessed to selling during Berkshire Hathaway's annual shareholder meeting is underperforming media titan Paramount Global (PARA -4.91%). Buffett commented that he sold the entire stake (more than 63.3 million shares, as of December 31), and that "we lost quite a bit of money."
Buffett also silenced ongoing rumors about the losses Berkshire absorbed from its stake in Paramount Global by absolving Todd Combs and Ted Weschler and noting that "I was 100% responsible for the Paramount decision."
The thumping Buffett took on his investment in Paramount can be traced to a couple of challenges. To start with, it's been tough sledding for certain types of advertisers over the past year and change. Specifically, legacy TV networks have seen ad dollars shift to streaming platforms. Between ongoing cord-cutting and select money-based indicators forecasting a recession, advertising revenue for its legacy networks has declined.
The other issue for Paramount Global has been its need to build out its streaming assets and content library to counter cord-cutting. Although revenue for its direct-to-consumer (DTC) segment surged 37% last year to $6.74 billion, the DTC segment is still losing a boatload of money. While increasing monthly subscription prices is part of the recipe to shrink these losses, Paramount's streaming segment is an undeniable drag on the company's bottom line.
Given these challenges, Paramount Global's future might entail it being acquired. Private equity company Apollo Global and Sony Pictures have sent a letter to Paramount's board where they've expressed interest in paying $26 billion, including debt, to acquire the company. Paramount has also had discussions about a potential merger with Skydance Media.
While the advertising landscape should meaningfully improve this year, thanks in large part to higher spending during an election year, Paramount is going to need to address its steep DTC losses if it's to right the ship.
Chevron: Roughly 3 million shares sold in the first quarter
Even though Warren Buffett didn't confess to selling shares of energy juggernaut Chevron (CVX 0.98%) in the March-ended quarter, Berkshire's first-quarter operating results appear to have spilled the beans.
As of the end of March, the fair value of Berkshire's investments in Chevron were listed as "$19.4 billion." But based on Chevron's closing value of $157.74 on March 28, along with the 126,093,326 shares Berkshire held, as of Dec. 31, 2023, this position should have been fairly valued at nearly $19.9 billion. This roughly $500 million difference in fair value implies that the Oracle of Omaha and his team sent around 3 million shares of Chevron to the chopping block during the first quarter.
Similar to reducing his company's enormous stake in Apple, I wouldn't read too deeply into Buffett and his aides paring back their position in Chevron by a relatively small amount.
For starters, Berkshire's smartest investing minds realize how critical energy commodities like oil are to the U.S. and global economy. Buffett, Combs, and Weschler generally take a long-term view on the investments they make and realize that the U.S. economy tends to grow over long periods.
To add, Chevron should benefit from the tight global supply of crude oil. Major energy companies (including Chevron) were forced to pare back their capital spending for years during the pandemic. Further, Russia's invasion of Ukraine has created energy supply concerns for Europe. As long as the supply of crude oil remains constrained, there's a reasonable likelihood that the spot price of crude will head higher. That's great news for Chevron's high-margin drilling segment.
Another reason Buffet & Co. trust in Chevron is its integrated operating structure. In addition to its drilling operations, Chevron owns transmission pipelines, chemical plants, and refineries. These are segments that provide steady operating cash flow and a hedge against a move lower in the spot price of crude oil.
Lastly, Chevron has one heck of a capital-return program. It recently raised its base annual dividend for a 37th consecutive year, and its board OK'd a repurchase program of up to $75 billion last year.
More than likely, Buffett and his team paring down their stake in Chevron represents nothing more than some minor profit-taking.
