Warren Buffett’s Investing Secrets Revealed
For nearly six decades, Warren Buffett, CEO of Berkshire Hathaway, has been outperforming Wall Street’s benchmark index, the S&P 500. His impressive returns and investing prowess have made him one of the most-followed money managers on Wall Street.
Riding Buffett’s Coattails
Thanks to required filings with the Securities and Exchange Commission (SEC), including Form 13Fs and Berkshire Hathaway’s quarterly operating results, everyday investors can gain insight into Buffett’s investment strategies. These filings reveal which stocks Wall Street’s most successful money managers, including Buffett, purchased and sold in the latest quarter.
Selective Buying
Buffett and his top investment aides, Ted Weschler and Todd Combs, have been very selective buyers in recent years. In fact, Berkshire’s brightest minds have sold $166 billion more in stocks than they’ve purchased over eight quarters. However, there is one financial giant that Buffett hasn’t been afraid to pile into.
Bank of America: A Cause for Concern?
While Berkshire Hathaway has been selling down its stake in Apple, the recent and persistent selling activity in Bank of America is raising eyebrows on Wall Street. Since July 17, Berkshire Hathaway has filed 16 separate Form 4s concerning Bank of America, selling over 266 million shares totaling $10.52 billion. This represents roughly 26% of Berkshire’s stake, as of the end of June.
Is Buffett’s Selling Spree a Warning Sign?
There are two possible reasons behind Buffett’s selling spree in Bank of America stock. One possibility is that Buffett is locking in some of Berkshire’s largest unrealized gains now to save the company money in the long run, given his expectations of rising corporate tax rates. Alternatively, the selling could be stock-specific, driven by concerns about Bank of America’s sensitivity to changes in interest rates.
The Oracle’s Favorite Stock
Despite the potential for a meaningful downturn in equities, there is one stock Warren Buffett can’t stop buying: shares of his own company, Berkshire Hathaway. Since the midpoint of 2018, Buffett has spent nearly $78 billion buying back shares of Berkshire Hathaway stock. This buying activity is not reflected in Berkshire’s Form 13Fs or occasional Form 4 filings, but rather in the company’s quarterly operating results.
Why Buffett Loves Buying Back His Own Stock
Repurchasing shares of Berkshire Hathaway stock hasn’t always been easy. Prior to July 2018, Buffett was only allowed to buy back his company’s stock if shares fell to or below 120% of book value. However, Berkshire’s board amended the rules in 2018, allowing Buffett to repurchase shares with no end date or ceiling as long as Berkshire has at least $30 billion in cumulative cash, cash equivalents, and U.S. Treasuries on its balance sheet, and Buffett views his company’s shares as intrinsically cheap.
The Benefits of Share Repurchases
By steadily reducing Berkshire’s outstanding share count, Buffett is incrementally increasing the ownership stake of shareholders. Reducing the share count would also be expected to have a positive impact on Berkshire’s earnings per share (EPS). Excluding unrealized investment gains/losses, Buffett’s company has a lengthy track record of increasing its operating income.
A Lesson from the Oracle
Warren Buffett’s investment strategies offer valuable insights for everyday investors. By understanding his approach to buying and selling stocks, investors can gain a better understanding of the market and make more informed investment decisions.
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