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Rupert Hargreaves
Rupert Hargreaves
Articles (1372)  | Author's Website |

Lessons From Berkshire's Barrick Gold Sale

The conglomerate's actions show why it's not a good idea to blindly track 13Fs

November 20, 2020 | About:

When Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) second-quarter 13F was published, it caused a lot of fuss in the financial media. One position, in particular, attracted most of the attention.

The report revealed that Berkshire had acquired 21 million shares in gold miner Barrick Gold (GOLD). The position was intriguing because Berkshire's CEO, the Oracle of Omaha Warren Buffett (Trades, Portfolio), has previously said that he does not think gold is a good long term investment. Some interpreted the conglomerate's position in Barrick to be a sign that he no longer held this view.

A closer look at the holding

As I predicted at the time, reading too much into this position would have been a mistake. Positions in 13Fs should never be taken at face value. The report did not reveal why the holding was acquired, who acquired it, and whether it was a hedging position or part of a more complex strategy.

What's more, the fact that the position was only worth around $700 million was a strong sign that it was one of Berkshire's other portfolio managers that acquired the stock rather than Buffett himself. In recent years, the billionaire investor has been stepping back from the day-to-day management of the conglomerate's portfolio. Reports suggest that he has to give the green light to any positions over $1 billion, but for anything below that, he may have made no input on the holding and why it was acquired.

This means that from the very beginning, it was possible that the holding was not going to be a long-term position. Whenever Buffett buys stocks, he does so with the view of holding on forever. The same cannot be said for his portfolio managers Ted Weschler and Todd Combs, who inevitably have their own investing strategies. 13F filings published over the past few years show these managers trade more often and have no particular time constraints with new positions.

That seems to be exactly what has happened with Barrick. After adding the position to the portfolio during the second quarter of 2020, it appears that the portfolio managers were selling shares in the gold mining giant throughout the three months to the end of September. It was possible that it was always meant to be a short-term holding.

According to Berkshire's to most recent 13F, the firm owned only 12 million shares in Barrick at the end of the third quarter, down by 42% from the previous quarter. The position now makes up just 0.15% of the overall portfolio.

Do your own research

These changes show why it does not make any sense to take 13F reports too seriously. They provide an insight into the kind of stocks portfolio managers are buying, but they don't explain why the positions were acquired, what prices they were acquired at or what strategy they are a part of.

What's more, the reports are backward-looking. All they tell us is that the asset manager in question owned the stock at a particular point of time, in this case as of Sept. 30. That was weeks ago. Berkshire may have sold off the rest of the position during this time or doubled it. By the time the last report was released, the conglomerate may have even started selling its Barrick holdings.

Investors who followed Berkshire into Barrick may now face a dilemma. Is it time to sell up, or is it worth holding on? It would be easy to answer this question if one had completed their own rigorous research in the first place. Without doing your own due diligence, there's a significantly enhanced possibility of making a big mistake in investing.

Disclosure: The author owns shares in Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website

Rating: 4.3/5 (4 votes)



Dukkipat premium member - 2 months ago

Its a mistake to think Gold's bull run has ended the same way it did in 2011. There is no way interest rates are going up and economy is self sufficient wiihout dollar devaluation. Hope I am right and WB managers are wrong

Sf_tsai - 2 months ago    Report SPAM

Great detailed analysis!

TerrenceHenry - 2 months ago    Report SPAM

Research is not an easy task. It requires time and hard work. Here they have techniques and ideas for the students to facilitate them with all the ease at http://www.nosweatshakespeare.com/blog/shakespearean-words-that-hold-up-today/ so that they can continue their work easily by sitting at the home even in this covid situation.

DanaBoy - 2 months ago    Report SPAM
Anyone who follows overrated, old fart Warren Buffett (Trades, Portfolio)'s financial advice on anything deserves to lose his shirt!

Yellojacket - 2 months ago    Report SPAM

Blindly following 13Fs is the worst mistake one can make. Never follow the gurus blindly! To be fair though, he was against holding gold, not against buying gold mining stocks.

Asawhneyy - 2 months ago    Report SPAM

Berkshire and managers are one and the same---why do you distinct ?

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