Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) published its third-quarter 13F filing earlier this week, reporting U.S. equity position changes during the three months to the end of September.
The report presents a great starting point for further research into Buffett's equity positions, although investors should note it only provides a limited snapshot into Berkshire's portfolio. 13F reports exclude international equities, credit investments and cash holdings.
Berkshire and Buffett provide some limited disclosure on additional positions in other comments and reports. Still, the Oracle of Omaha tends to avoid speaking about positions too much, as this may encourage copycat investors.
As such, while the 13F provides some interesting insights into the portfolio, it will always be difficult to understand exactly why positions were bought or sold and the prices at which they were acquired.
Position changes
A couple of interesting position changes stand out in Berkshire's 13F. The first is the fact that the conglomerate increased its position in the oil giant Chevron (CVX, Financial). As this position is worth more than $1 billion, we can assume it is Buffett himself who is making the decisions on this one.
Berkshire first started buying the stock in the third quarter of 2020. It eventually acquired 48.5 million shares but then divested 50% of the position in the first quarter of 2021.
However, last quarter the conglomerate increased its position by 24%. It now owns 28.7 million shares, worth nearly $3 billion with a 1% portfolio weight.
It could be the case that Berkshire was buying the stock when it fell below $100 in July and August as the price of oil rallied to a multi-year high.
There were only two other portfolio additions in the third quarter, Royalty Pharma plc (RPRX, Financial) and Floor & Decor Holdings (FND, Financial). As these holdings are both worth less than $1 billion ($475 million and $100 million, respectively), I think they were likely acquired by Berkshire's portfolio managers, Todd Combs and Ted Weschler, as per what the Oracle has said in the past.
Overall, Berkshire did much more selling than buying, which tallies with the information contained within the company's quarterly reports. Buffett continued to divest his interests in pharmaceutical groups, which have been in the portfolio for less than a year.
Merck & Co. (MRK, Financial) was completely removed, while it looks as if Bristol-Myers Squibb (BMY, Financial) is on the way out. Bristol-Myers was acquired in the third quarter of 2020, around the same time as Berkshire was buying Merck. Both were multi-billion dollar positions, but it seems as if Buffett has since changed his mind on the direction of these companies. Elsewhere, Berkshire sold a small investment in Organon & Co. (OGN, Financial). The group acquired 1.5 million shares in the second quarter of 2021.
It is also reducing a holding in Marsh & McLennan (MMC, Financial). In the first quarter of 2021, Berkshire owned 5.3 million shares in the insurance company. It has since cut the position in half.
Shorter holding periods
What is interesting about all of the above information is that Berkshire is trading in and out of positions more frequently than it has been in the past.
As I noted at the beginning of this article, as we don't have all of the information, it is difficult to say precisely why the group's holding periods have become shorter. These could be merger arbitrage or short-term hedging trades employed by Combs and Weschler. They could also be small positions initiated by the Oracle himself to help him understand how the underlying companies function. He has a track record of doing this, although he has tended to use his personal portfolio for this strategy in the past.
Another explanation could be the fact that Buffett just changed his mind on these stocks. Perhaps he thought he had found a good idea, and it turned out not to be. The Oracle knows more than anyone else how important it is to sell up and move on when an idea turns bad, rather than waiting for a potential turnaround.
