– By Rupert Hargreaves
Digging through Berkshire Hathaway’s (NYSE:BRK.A) (NYSE:BRK.B) third-quarter 10-Q form, I uncovered some interesting insights into Warren Buffett (Trades, Portfolio)’s stock trading activity this year. Of course, we will not know the details of his trades until the 13F is released in the upcoming weeks, but the 10-Q can still give us a bird’s-eye view of some information.
The Oracle of Omaha has said many times in the past that when he buys a security, it’s for life, but that has not been the case in 2020. This year, Berkshire has sold $28.6 billion of equity securities in the nine months to the end of September, including the stocks sold during as-yet-unknown trades in the third quarter. With Berkshire’s total equity portfolio standing at $245 billion at the end of the quarter, that implies a portfolio turnover rate of just under 12%.
On page 12 of the 10-Q report, readers will find the following comments:
“As reflected in the Consolidated Statements of Cash Flows, we received proceeds from sales of equity securities of approximately $28.6 billion in the first nine months of 2020 and $7.1 billion in the first nine months of 2019…Taxable gains were $3.9 billion in the third quarter and $666 million in first nine months of 2020. Taxable gains were $609 million in the third quarter and $1.96 billion in first nine months of 2019.”
We already have some idea of the biggest stocks Buffett was selling in the first half of the year, namely airlines and financials. However, Buffett ramped up his equity market activity in the third quarter. According to the company’s second-quarter 10-Q, during the first six months of 2020, Berkshire spent $4.8 billion purchasing equity securities and received just under $16 billion selling stocks. At the end of the third quarter, for the nine months to the end of September, the figures were $22.4 billion and $29 billion, respectively. These numbers imply Berkshire sold an additional $13 billion of stock in the quarter and spent $17.6 billion buying shares.
These are only rough numbers, and as noted above, we will have to wait to see the group’s third-quarter 13F for the full picture. But if this is indeed correct, when combined with the $9 billion of repurchases of Berkshire’s own stock in the quarter, there’s reason to believe Buffett deployed $27 billion of capital in the quarter.
So, why might Buffett be selling more of Berkshire’s holdings? Well, his past comments suggest there are only two main reasons why he might sell: either to raise money for new deals (unlikely considering how much cash Berkshire has) or because the economics of the companies being sold have changed. As he stated in 2002:
“We sell really when we think we’re re-evaluating the economic characteristics of the business. We probably had one view of the long-term competitive advantage of the company at the time we’ve bought it, and we may have modified that. That doesn’t mean that we think the company is going into some disastrous period or anything like that. We think McDonald’s (NYSE:MCD) has a fine future, we think Disney (NYSE:DIS) has a fine future, and there are others. But we don’t think their competitive advantage is as strong as we thought it was when we initially made the decision.”
Over the past 12 months, the world has changed dramatically. It seems Buffett has been positioning for a world after Covid-19. This has resulted in one of his most active trading years in recent memory.
Based on investment gains and losses reported in the 10-Q, the Oracle has taken a hit on some deals. Berkshire booked total losses of $13.9 billion for stocks sold in the first nine months of the year. However, its unrealized investment gains for the nine months to the end of September totaled $16.5 billion.
Disclosure: The author owns shares in Berkshire Hathaway.
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This article first appeared on GuruFocus.
