Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) published its long-awaited second-quarter earnings release over the weekend.
The statement contained several notable surprises, including the fact that Warren Buffett (Trades, Portfolio)'s conglomerate bought back a record $5.1 billion of its own shares in the second quarter.
This is the most significant volume of share purchases in the conglomerate's history and seems to mark a substantial change in direction for Buffett. Indeed, as well as spending a record $5.1 billion buying back stock in the second quarter, Berkshire also liquidated $13 billion of other equity holdings.
Berkshire's detailed equity holdings will only be revealed in the group's 13F filing, which will be published towards the end of this week. As such, the information and conclusions presented below are mostly speculations on my part.
Buffett's second-quarter moves
Buffett's increased buyback activity in the second quarter was surprising to me. He has said over the past two years that he would be willing to buy back more stock in the group at the right price, but repurchase activity has been limited since Berkshire changed its buyback criteria in 2018.
The largest quarter for buybacks in the past was the fourth quarter of 2019, when Berkshire spent $2.2 billion. In the first quarter of 2020, Buffett spent only $1.7 billion to repurchase shares. Including the latest outlay, this suggests Berkshire has spent a total of $6.8 billion buying back stock this year. According to the group's SEC filing, the average price paid in the first quarter was around $175 per B share.
Since the beginning of the third quarter, the stock has since rallied back above $200, so Buffett may not be buying back as much stock in the third quarter. This is a fairly conservative projection, as he has paid more than $220 per share in the past.
Aside from these figures, initial projections suggest that the Oracle of Omaha was a net seller of stocks in the second quarter. As noted above we will have to wait until the 13F filing for more detail on this, but we already know that he had sold out of his airline positions at the beginning of the quarter. These were worth around $5 billion at the end of the first quarter.
Looking past the sales, Berkshire has made some other known moves recently. The primary deal was the $10 billion Dominion (D, Financial) pipeline acquisition. Buffett has also spent $2 billion increasing his Bank of American (BAC, Financial) holding.
Some investors may be disappointed by the Oracle of Omaha's lack of action over the past few weeks and months. However, it's important to remember the scale of the current crisis. The S&P 500 may have recovered most of its losses, but many businesses are really struggling. Berkshire's $10 billion Precision Cast Parts write-down shows the impact this is having on the group.
Buffett wants Berkshire to be a fortress, and it is. With $146 billion of cash on the balance sheet, the group can afford to wait for excellent opportunities like the Dominion deal.
It should also be noted that Buffett signed his biggest deals in the last crisis a year or so after the storm had passed. For example, the Bank of America deal came in 2010. We may seem the same pattern this time around.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Warren Buffett: We Sell When the Fundamentals Have Changed
- Warren Buffett: We Think the Very Term 'Value Investing' Is Redundant
- Charlie Munger: It's 'Stupid' to Maximize Returns on Short-Term Money
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