There were four very notable developments in Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) equity portfolio in the fourth quarter of 2019.
According to the conglomerate's latest 13F filing with the SEC, Berkshire substantially reduced its position in the banking groups Wells Fargo (WFC, Financial) and Goldman Sachs (GS, Financial) during the quarter.
As well as these two notable developments, the group also reduced its position in insurance group Travelers Companies (TRV, Financial) and acquired shares of S&P 500 ETFs.
Selling Wells
Wells Fargo is one of Berkshire's top five equity investments, which suggests that the Oracle of Omaha has control over the position. He usually takes responsibility for the buying and selling of all multi-billion dollar positions, while his two portfolio managers tend to be responsible for smaller holdings.
The insurance-to-railroads conglomerate has been steadily selling some of its Wells positions for some time. As the lender has been repurchasing shares, Buffett has had to sell stock to remain below the 10% ownership limit imposed by the Federal Reserve.
However, in the past two quarters, Buffett has accelerated his selling. He sold around 7% of Berkshire's position in the third quarter of 2019 and 14.6% in the fourth.
Some of this selling is going to be linked to the bank's stock repurchases. It outlined plans to buy back around 10% of its outstanding shares over the next 12 months at the beginning of 2019.
However, the size of the sales indicates that Buffett is selling much more. This implies that he no longer believes in the bank and its management.
I don't want to second-guess the Oracle of Omaha, so we will have to see what the next few quarters hold and keep an eye out for his comments. Still, from recent interviews, it does appear as if he is disappointed with Wells' response to the fake accounts scandal and management's subsequent lack of action.
Holding 'forever'
Another notable portfolio change in the fourth quarter was the decision to reduce the holding in Goldman Sachs by more than a third.
This is particularly notable because Buffett increased the multi-billion dollar position from 11 million shares in the first quarter of 2018 to 18.3 million by the end of the year.
The fact that he has now sold off virtually all of these shares at a similar price suggests that he believes the investment was a mistake. The holding period is really short for a man who says that his favorite holding period for stocks is "forever."
The same is true of the Travelers position. As a relatively small position in the Berkshire equity portfolio, accounting for just 0.4% of assets under management at the end of the third quarter of 2019, it seems that this position was managed and initiated by one of Buffett's investing lieutenants.
Still, it is surprising that the company first appeared in the portfolio in the third quarter of 2018, but had almost been eliminated by the end of 2019. According to my research, Berkshire was buying Travelers at a price of between $127 and $119 per share. It traded between $140 and $130 in the fourth quarter of 2019, implying that the conglomerate made a modest profit on the position.
Such a short holding period also suggests that the portfolio managers believe they made a mistake in buying a position and wanted to get out after acknowledging the fact.
Tracking ETFs
The final notable development in Berkshire's portfolio that I want to cover in this article is the addition of S&P 500 ETFs to the portfolio.
Once again, these are relatively small positions, accounting for just 0.02% of the overall portfolio, indicating that Buffett's investing lieutenants initiated these two trades.
Still, it is interesting to note that some of the most famous stock pickers in the world are now investing in tracker funds rather than trying to pick stocks. This suggests that they cannot find as many attractive positions that fall inside their circle of competence and would thus rather buy the market - another trend to keep an eye on going forward.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Warren Buffett: Don't Overlook Retained Earnings
- Carl Icahn Has Outperformed Buffett Over the Past 20 Years
- 5 of Warren Buffett's Most Important Investment Lessons
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