Discover more from Kingswell
The Ins & Outs of Berkshire Hathaway's Stock Portfolio
Sorting through Berkshire's investment moves in Q2 2023
Happy Tuesday and welcome to all of our new subscribers!
As we catch our breath after another frenetic 13F deadline day, I’d like to start with a brief word of thanks to those Kingswell readers who have become paid subscribers over the past few months.
Your generosity makes all of this possible and your support means the world to me!
If you enjoy reading this newsletter and would like to directly support its growth, please consider upgrading to a paid subscription — all for less than the cost of lunch.
(Plus, paid subscribers receive one “bonus” each month. In July, it was a Charlie Munger Q&A transcript. And, next week, I’ll be releasing this month’s “bonus” — an annotated transcript of a recent Todd Combs interview.)
THANK YOU FOR YOUR SUPPORT! ❤️
Each quarter, all investment managers with more than $100 million of assets under their control must file a report (Form 13F) with the SEC to disclose any changes in their portfolio.
They must do so within 45 days of the end of the previous quarter — setting up yesterday’s mad dash as any heel-draggers rushed to get their Q2 2023 papers in right under the wire.
A few reminders:
Don’t turn 13Fs into anything more than an academic exercise. These are not cheat sheets of what your next move in the market should be. Nor are they endorsements about the future prospects of any company.
Any moves revealed in these filings are only current as of June 30, 2023 — so they’re already six weeks old and quite possibly out of date. Don’t coat-tail!
On the plus side, 13Fs demonstrate how different investors — even those who espouse the same value-based principles — go about their business in drastically different ways.
As Warren Buffett says, “In investing, there’s more than one way to get to heaven.”
And, speaking of Buffett, Berkshire Hathaway’s 13F should come with an additional word of warning:
Not all investments revealed herein were made by Warren Buffett.
With Todd Combs and Ted Weschler managing an ever-increasing portion of Berkshire’s portfolio, it can be difficult to discern which investments belong to Buffett and which come from his lieutenants.
Some try to read the tea leaves or make deductions based on a particular position’s size or industry, but — at the end of the day — everyone’s just guessing.
(So, whenever I write “Buffett bought…” or “Buffett sold…” something, it might actually be Combs or Weschler’s handiwork. Such is the inherent uncertainty that all Berkshire students must labor under.)
For the third quarter in a row, Berkshire ended up as a net seller of stocks — with $12.6 billion of sales and only $4.6 billion of purchases. So, please, temper your expectations accordingly.
Okay, now on to the main event…
OCCIDENTAL PETROLEUM: Warren Buffett has been a disciplined buyer of OXY 0.00%↑ over the past eighteen months — and Q2 2023 was no exception. The Oracle patiently waits for the price to drop under $60 (and, sometimes, even lower) before snapping into action and adding a few million more shares to his stockpile.
All told, Buffett purchased 12.4 million shares of Oxy — for a total price of $722.2 million — during the second quarter. That boosts Berkshire’s stake in the oil-and-gas giant up to 25.3%.
But it may be a while before Buffett gets the chance to add more. After spinning its wheels for most of 2023, Oxy roared to life last Friday on news that the U.S. Department of Energy had awarded federal funds to the company to help it build a Direct Air Capture (DAC) plant in Texas. Oxy closed last week at its highest price since Valentine’s Day.
CAPITAL ONE FINANCIAL: After opening a position in COF 0.00%↑ last quarter, Berkshire tacked on another 2.5 million shares in Q2. Back in July, I linked to Berkshire director Chris Davis’s recent interview with Barron’s — in which he laid out his bull case for the bank holding company. Here is what Davis had to say…
Capital One has been a fintech company since the start. It uses data science to market financial services. It is still run by its founder, Richard Fairbank. The bank pays a high rate on its deposit base. It is a big issuer of credit cards — primarily to working people, not big spenders. The best analogy is Progressive, a data-science company disguised as an insurer. Progressive realized early on that there is no bad risk; there is only bad pricing.
Capital One has matched its loans to its deposits. At around $100 a share, it is trading right around tangible book value, for a business that has had a low- to mid-teens return on equity for 35 years.
Capital One even dipped into the $80s during the first half of May.
THE HOME-BUILDERS: The three new additions to Berkshire’s portfolio — D.R. Horton, NVR (parent company of Ryan Homes), and Lennar Corp. — are all heavily involved in home construction.
That piqued my interest because Berkshire’s building products group (including Clayton Homes) suffered a slowdown in the second quarter, with revenues down 13.2% and earnings down 6.1%. The recent 10-Q attributed this to “significant increases in home mortgage rates … [that] slowed demand for our home building businesses”.
That weakness hasn’t put a dent in these stocks, though, as new home sales continue to power the sector to new heights. Each of Berkshire’s new additions is up more than 30% year to date. Long may that continue.
CHEVRON: Surprise, surprise. For the twelfth consecutive quarter, Warren Buffett chopped and changed his position in CVX 0.00%↑. (That’s gotta be some sort of record.)
In Q2, Buffett unloaded 9.2 million shares of the oil major. Between that and Chevron’s recent issuance of 41 million shares to complete its acquisition of PDC Energy, Berkshire now owns approximately 6.45% of the company.
ACTIVISION BLIZZARD: Buffett is no stranger to the arbitrage game. Back in his partnership days, these “workouts” (as they were then known) were an important pillar of his investment strategy — and he later reprised this tactic during the buyout-happy 1980s.
“We sometimes enter the arbitrage field when we have more money than ideas,” he told Forbes in 1986.
Buffett exited his arbitrage play on Activision in the second quarter, selling the 34.7 million shares that he bought after the merger was initially agreed. The remaining 14.6 million shares of ATVI 0.00%↑ that remain in Berkshire’s portfolio were purchased by either Todd Combs or Ted Weschler before Microsoft even started to sniff around the Call of Duty maker.
Activision stock didn’t shoot up into the $90s until July, so Buffett certainly left some meat on the bone by selling so early. But, without knowing exactly when in Q2 that he sold, it’s difficult to really get a handle on this arbitrage play’s success or failure.
A FEW FULL EXITS: Berkshire fully bowed out of three positions in the second quarter — McKesson Corp., Marsh & McLennan, and Vitesse Energy. MCK 0.00%↑ had been on the chopping block for the last two quarters, so this doesn’t come as too much of a surprise.
The same goes for VTS 0.00%↑ — which Berkshire only ended up owning because it was spun off from Jefferies Financial Group in January. Between May 4 and June 8, Vitesse’s stock price soared by 51%, possibly presenting Berkshire an opportune chance to exit stage left.
AND A LITTLE
TRIMMING SLASHING: Three other companies managed to avoid the drop, but did not escape Q2 unscathed.
Berkshire sliced and diced its positions in Celanese Corp. (-39.2%), General Motors (-45.0%), and Globe Life (-60.4%) to round out this quarter’s activity.