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All Contents © 2018The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| November 15, 2017
Christmas comes four times a year if you’re a fan of Warren Buffett. Thanks to regulatory requirements, acolytes get a peek at what stocks the Oracle of Omaha is buying and selling on behalf of Berkshire Hathaway (BRK.B), the holding company of which he is chairman. The Securities and Exchange Commission requires all investment managers with more than $100 million in assets to file a Form 13F quarterly to disclose any changes in share ownership.
These filings add an important level of transparency to the stock market, and gives Buffett-ologists a chance to get a bead on what he’s thinking. When Buffett starts a new stake in some company, or adds to an existing one, investors take that as a vote of confidence. On the other hand, if he pares his holdings in a stock, it can spark investors to rethink their own investments.
The most recent 13F, filed on Nov. 14, wasn’t much for fireworks. Buffett added to some investments he’s been high on for a while, and continued to sell some stock in investments he’s already made clear haven’t thrilled him. Although the latest disclosure didn’t contain any earth-shattering news, it’s always interesting to see what Buffett and his lieutenants, Ted Weschler and Todd Combs, are up to.
Here’s the scorecard for what Berkshire Hathaway bought and sold during the three months ended Sept. 30.
Data is as of Nov. 14, 2017. Stocks are listed in alphabetical order. The number of shares held by Berkshire Hathaway are as of the third quarter.
Action: Added to stake
Shares held: 134.1 million (+3.0% from Q2)
Value: $23 billion
Buffett made his first foray into Apple (AAPL, $171.34) in early 2016 and has been adding to it ever since. Berkshire Hathaway said it scooped up a 9.8 million-share stake in Apple during the first quarter, worth $1.07 billion at the time, and has been adding to it ever since.
As a popular technology stock, Apple often is thought of as a bet on growth. But there’s value to had, too, say Buffett-watchers. David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who studies Buffett and is a Berkshire shareholder, notes that customer devotion to Apple products and services almost serve as an annuity.
“Apple may be viewed as a ‘subscription model’ with a loyal customer base very likely to purchase future products and services,” Kass said in a September interview.
Action: Exercised warrants
Shares held: 679 million
Value: $17.8 billion
Buffett famously loves a good bargain, and that’s exactly what he got in 2011 when he swooped in to shore up the finances of Bank of America (BAC, $26.24). In exchange for investing $5 billion in the bank six years ago, Berkshire received preferred stock yielding 6% and warrants giving Berkshire the right to purchase BofA common stock at a steep discount.
After exercising the warrants – and making a $12 billion paper profit in the process – Buffett’s stake in the bank has grown to 679 million shares. In fact, Berkshire Hathaway’s 6.5% stake makes it Bank of America’s biggest stockholder.
Kass has noted that BofA is a very well-run financial company that should benefit as interest rates rise in the near future.
Action: Trimmed stake
Shares held: 8.5 million (-10.1% from Q2)
Value: $2.9 billion
Berkshire first took a position in the cable company in the second quarter of 2014. The following year, Charter Communications (CHTR, $336.81) announced an agreement to acquire Time Warner Cable, which gave shares a lift. Berkshire pared its holdings in 2015, when it also pulled back on media companies such as Verizon (VZ) and Liberty Media (LBTYA, LBTYK).
Rumors of a bid from Verizon last year likewise lifted the stock, and overall, Charter’s shares are up 115% since August 2014, when Berkshire disclosed its stake. But the stock has been in a funk since late summer, dropping more than 16% over the past three months.
Shares held: 37 million (-31.5% from Q2)
Value: $5.5 billion
Investors first learned of Buffett’s displeasure with his investment in International Business Machines (IBM, $148.89) in May. That’s when he revealed that he wasn’t happy with his bet on Big Blue.
Berkshire started buying the stock in 2011, and by the end of 2016 owned 81.2 million shares. But Buffett sold off about a third of the stake in early 2017, and he has cut it by almost another third in the most recently completed quarter.
“IBM is a big strong company, but they’ve got big strong competitors, too,” he said in May. And how. IBM is fighting with both Amazon (AMZN) and Microsoft (MSFT) for a piece of the cloud-computing pie. The takeaway from the move is that Buffett is the first to admit when he gets something wrong. That’s a hallmark of any good investor.
Shares held: 8.9 million (+10.3% from Q2)
Value: $1 billion
Buffett only tweaked Berkshire’s investment in Monsanto (MON, $118.05), but it’s a vote of confidence nonetheless. After buying roughly 832,000 shares over the past quarter, Berkshire now owns more than 10% of the agriculture company.
Berkshire first disclosed its ownership of Monsanto in February, having picked up 8 million shares – worth more than $800 million at the time – in the fourth quarter of 2016.
Monsanto and Bayer (BAYRY) announced a $66 billion merger in September 2016, so Berkshire’s newfound fondness for Monsanto was largely taken to be Buffett giving a thumbs-up to the merger. The need for regulatory approval is expected to push the closing of the deal into 2018.
Shares held: 20.8 million (+19.1% from Q2)
Value: $676.3 million
Like Monsanto, Berkshire upped its stake in Synchrony Financial (SYF, $32.56) but didn’t throw around big money. Kass says that in both cases, Buffett added only about $100 million to each bet.
His ardor for credit card companies is always worth noting, however.
In addition to Synchrony, a major issuer of charge cards for retailers, Berkshire owns nearly $1.2 billion worth of Visa (V) shares and $734 million worth of MasterCard (MA). Of course, Buffett’s greatest love has always been reserved for American Express (AXP). Buffett took his first stake in AmEx in the 1960s, and it’s still paying off a half-century later. Today, Berkshire owns 17.5% of the company – a stake worth about $14.2 billion.
Shares held: 464.2 million (-0.8% from Q2)
Value: $25.1 billion
It has been a rocky ride over the past 14 months for investors in Wells Fargo (WFC, $54.04) and now even its biggest shareholder is taking a step back – but not for the reasons one might think.
Wells Fargo a year ago was caught opening millions of fake customer accounts. And just when things had started to quiet down, it emerged that employees also charged 800,000 auto-loan customers for car insurance they didn’t need.
In October, Buffett said Wells Fargo still had his faith. Berkshire previously has said that “commitments that would be required of us by the Federal Reserve to retain ownership of 10% or more of Wells Fargo’s outstanding common stock would materially restrict our commercial activity with Wells Fargo,” and thus the company occasionally sells shares to keep its stake under 10%.
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