Until only a few days ago, it was widely believed that Warren Buffett (Trades, Portfolio), the Oracle of Omaha, had been sitting on his hands for the majority of this year, accumulating cash and waiting quietly for the next significant investment opportunity to come his way.
Last weekend, we learned that this is not the case. In fact, rather than sitting on his hands, Buffett has been buying equities at a rapid rate over the past five months, spending cash at one of the fastest speeds in recent history.
Time to buy stocks?
It seems that there has been a dramatic change in Buffett's perception of the market over the past 12 months.
Indeed, he recently commented that the prices for many businesses have reached "all-time highs" and as a result, he has been struggling to find acquisition opportunities to deploy Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial)'s "elephant gun,"' the mountain of cash the conglomerate has accumulated since its last significant deal, the $37.2 billion buyout of Precision Castparts in 2015.
At the end of 2017, Berkshire's cash pile reached a record $116 billion. But since then it has not returned to this high water mark. In fact, despite a near doubling of operating profit to $6.9 billion for the third quarter of 2018, Berkshire's cash pile has declined to $103.6 billion.
So, where has the money gone? The simple answer is: stocks.
According to Berkshire Hathaway's latest SEC filings, the company spent around $12.6 billion buying equities for its securities portfolio in the third quarter. On top of this, the Oracle of Omaha deployed nearly $1 billion buying back shares in Berkshire itself, after changing the rules governing buybacks at the conglomerate earlier this year.
In no uncertain terms, $12.6 billion is a sizable sum. It is the most substantial amount that the Oracle of Omaha has spent buying equities since 2012, which seems to suggest that he views the market as attractive at its current level, even though other investors and traders seem to think otherwise. The buyback of Berkshire's shares is also significant because there are only a few other occasions in history when Buffett has decided his own stock is a better investment than anything else out there. Share repurchases are possibly the last thing Buffett wants to be spending his money on.
What's Buffett buying?
According to the footnotes of Berkshire's latest 10-Q, Bank of America (BAC, Financial) was by far the most substantial investment made during the quarter.
According to my calculations, Berkshire spent an estimated $6 billion of its cash pile adding to the Bank of America position. Between the beginning of July and end of September, shares in Bank of America traded in a range of $28 to $32. Since then, they've broken out, falling to a low of $26 at the end of October. This seems to suggest that even though the stock has risen five-fold since the end of 2012, the Oracle of Omaha still sees value here.
We will have to wait for Berkshire's 13F filing for more information on equities acquired during the third quarter.
As equity prices have only come down since the end of September, Buffett likely will have been equally busy in the first few weeks of the last quarter of the year -- particularly when it comes to repurchasing his own shares.
As noted in an article a week ago and reinforced by the recent revelation that Berkshire acquired nearly $1 billion worth of shares in the third quarter, Buffett is happy to pay up to $318,000 per A share with repurchase activity. The stock spent virtually the whole month of October trading below this level.
Disclosure: The author owns shares in Berkshire Hathaway.
