Roughly 40,000 Berkshire Hathaway (BRK.A +0.10%) (BRK.B +0.06%) shareholders will descend upon Omaha, Nebraska the first weekend in May. The annual shareholder meeting hosted by CEO Warren Buffett gives investors an opportunity to ask the Oracle of Omaha questions about Berkshire Hathaway and the stock market in general.
But before the question and answer portion, which lasts hours, Buffett likes to discuss the company's first-quarter financial results. I expect those financial statements will disclose an increase in one of Buffett's biggest investment holdings for Berkshire Hathaway. And he'll likely field several questions about it to give investors more insight on May 3.
Image source: The Motley Fool.
The growing investment found in Berkshire's financial statements
While investors will have to wait until May 15 to get Berkshire Hathaway's full portfolio disclosure for the end of the first quarter, we already have several big hints as to the moves Buffett and his team have made so far this year.
SEC filings disclosed purchases of three stocks in January and February: Buffett bought Verisign, Sirius XM, and Occidental Petroleum. Those small add-on purchases totaled about $93.5 million. Filings also show Berkshire sold approximately $147.7 million worth of DaVita in order to maintain ownership below 45%.
The only other purchases we know of are Buffett's add-ons to the five Japanese trading houses, which totaled an estimated $2.7 billion.
It's unlikely Buffett made any other big stock purchases. The S&P 500 came into the year near an all-time high and mostly continued its march higher until mid-February. Even after a decline in March, stocks remained near the level they entered the year in aggregate. More importantly, large-cap stocks remained expensive from a valuation standpoint, which has led Buffett to mostly eschew buying very much over the last two years. He's even stopped buying back shares of Berkshire Hathaway.
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Key Data Points
But Berkshire's portfolio of stocks pays out a lot of dividends, and its wholly owned operating businesses pay out even bigger dividends (in the form of operating income). All of that cash has to go toward something. And that's why I expect Buffett to have added even more to Berkshire's massive stash of Treasury bills.
Berkshire Hathaway ended the fourth quarter with approximately $300.9 billion worth of Treasury bills, and another $33.3 billion in cash. Investors have been waiting for Buffett to deploy that cash into a big investment, but it's unlikely that happened in the first quarter.
Thankfully, Buffett is getting paid to be patient. The average yield on six-month Treasury bills was about 4.3% during the first quarter. That's about $3.2 billion per quarter from Buffett's existing holdings.
Should investors follow Buffett's lead?
Buffett's biggest challenge right now is that Berkshire Hathaway's portfolio has grown so large that only a handful of companies make sense for him to take the time to fully analyze. A stock has to be large enough to move the needle at Berkshire, and that means Buffett needs to be able to deploy billions of dollars into it. Not a lot of stocks can absorb that kind of capital.
The good news for individual investors is that they don't need to be able to put billions of dollars to work. A few thousand bucks will probably do for most investors. That means the universe of potential investments is much broader for individual investors. And Buffett's recent purchases suggest there are a lot more attractive opportunities in smaller companies right now.
Buffett's buys over the last two years have focused on companies with market caps ranging from $15 billion to $50 billion. Meanwhile, he's sold some of the biggest companies in the market as their valuations soared. But investors could find even better value by looking at mid-cap or small-cap stocks. Indeed, the small-cap S&P 600 and the mid-cap S&P 400 trade for significantly lower valuations than the large-cap S&P 500. Even the equal-weight S&P 500, which weights each component of the index equally, has a substantially lower P/E.
Investors can follow Buffett into the stock market by picking individual stocks of smaller companies trading at good value or buying an index fund for a small- or mid-cap index or the equal-weight S&P 500 index.
In his 2024 letter to shareholders Buffett said, "Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses." While the options for Berkshire to own good businesses are few and far between, there are plenty of opportunities for small individual investors.
