Investors have long looked to Warren Buffett for investing advice. Why? Because the billionaire, at the helm of Berkshire Hathaway, delivered year after year of market-beating returns. In fact, over six decades as chief executive officer, he helped his team generate a compounded annual gain of more than 19% -- that's compared to 10% for the S&P 500.
Buffett handed the role of CEO over to longtime Berkshire Hathaway executive Greg Abel at the start of this year, so the first quarter offered us a first glimpse into Abel's investing strategy. Abel has spoken many times of his intention to follow the path established by Buffett -- this means Buffett-watchers may be eager to seek investing inspiration from this new CEO, too.
Just recently, fund managers overseeing more than $100 million reported their latest trades to the Securities and Exchange Commission on Form 13F, as they must do this on a quarterly basis. And Abel's 13F shows us that he unloaded all of Berkshire Hathaway's Amazon (AMZN +2.47%) shares and tripled his position in the following Magnificent Seven artificial intelligence (AI) stock that's climbed 100% over the past year. Let's check out these moves.
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Buffett's investment strategy
First, though, it's important to consider Berkshire Hathaway's general investing strategy with Buffett at the helm. The billionaire has always favored investing in quality companies at reasonable prices and holding on for the long term.
When it comes to industries, Buffett rarely invests in technology stocks as he favors investing in areas that he knows and understands very well. That said, he's been known to buy shares in certain technology players that are market leaders -- and certain have been chosen by his investment managers. That was the case of Amazon, a stock one of Buffett's managers bought back in the first quarter of 2019. Prior to this, Buffett publicly expressed regret for not getting in on Amazon stock even earlier.
Buffett held onto Amazon stock since that purchase, and from the end of the first quarter of 2019 through the end of last year, Amazon climbed about 160%.
The company experienced some tough moments during times of higher interest rates and supply chain problems, but a revamp of its cost structure, as well as a focus on the AI market, has boosted earnings and the stock price in more recent times.
Abel's latest move
Now, let's consider the move Abel made in the first quarter concerning Amazon and another Magnificent Seven technology stock.
- Abel closed out Berkshire Hathaway's Amazon position. Before that move, it represented just under 0.2% of the portfolio.
- Abel more than tripled his position in Alphabet (GOOGL +0.03%) (GOOG +0.02%) class A shares. Berkshire Hathaway now holds 54,249,798 of these shares, and they represent 5.9% of the portfolio. Buffett originally bought Alphabet shares in the third quarter of last year.
- Meanwhile, Abel opened a new position in Alphabet's class C shares -- these carry no voting rights -- and now holds 3,585,215 shares. This accounts for 0.4% of the portfolio.
When investors file 13F forms, they don't provide reasons for their buys and sells, so we don't know exactly why Abel made these moves. But, considering Buffett's ideas about buying quality stocks at interesting valuations, we might assume that valuation could have been one of the reasons behind the decision.
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Key Data Points
A look at valuation
While Amazon wasn't expensive during the first quarter of the year, Alphabet stock looked even cheaper, at one point trading at a low of about 19x forward earnings estimates.
AMZN PE Ratio (Forward) data by YCharts
Meanwhile, Alphabet has something else Buffett likes, and that's a solid moat or competitive advantage. Alphabet is the owner of Google Search, which consistently holds about 90% of the global search market -- and importantly, this drives the lion's share of Alphabet's revenue as advertisers rush to advertise their products and services across the Google platform.
At the same time, the company's presence in AI -- selling tools and services through its cloud business -- is supercharging revenue growth. So, Alphabet offers the safety and competitive advantage that Buffett likes while at the same time offering investors the potential to benefit from the AI boom. And the great news here is this move may please a broad range of investors -- from those seeking safety to those favoring growth.
