One of the biggest revelations from the Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting this year, as well as the company's first-quarter results which were released shortly before the meeting began, was the fact that the the conglomerate has been spending a significant amount of money so far this year acquiring new shares for its equity portfolio.
Overseen by CEO Warren Buffett (Trades, Portfolio), the portfolio is generally seen as a proxy for his own investment ideas, even though the portfolio ultimately belongs to the company's shareholders.
Over the past couple of years, the Oracle has neglected to deploy any significant amounts of Berkshire's growing cash pile, even though equity markets have charged ahead. He has let the conglomerate's cash pile grow due to a lack of perceived value opportunities, attracting some criticism from investors who believe the money would have been better off being invested somewhere.
However, it now appears as if Buffett has decided to change course. The Oracle deployed a staggering $41.5 billion into equities during the quarter first quarter of 2021 according to his comments at the shareholder meeting and in Berkshire's first-quarter earnings report, spending one-third of the conglomerate's cash pile in just three months. In fact, this is the most the conglomerate has spent on stocks since 2008. Does this mean Buffett is finally seeing value in the markets?
Building the portfolio
Buffett's buying was broad-based, according to his comments. Most notably, Berkshire raised its stake in Chevron (CVX, Financial) to $26 billion, up from a modest $4.5 billion at the beginning of the year.
It also bulked up its holding in Occidental Petroleum (OXY, Financial), though this information came from earlier filings with the SEC rather than Berkshire's shareholder meeting. It now owns more than 15% of the business after continuing to add to its holding in the first few weeks of the second quarter.
On top of these big buys, Buffett also directed $4.2 billion of cash to buy 11% of HP (HPQ, Financial) on April 6 (according to an SEC filing) and a further $600 million to bulk up Berkshire's biggest holding, Apple (AAPL, Financial) (according to comments at the shareholder meeting). After the meeting, the billionaire said that he was buying Apple stock because it looked cheap. "Unfortunately, the stock went back up, so I stopped. Otherwise who knows how much we would have bought?" he said.
These are just the deals we know about at this point in time. When Berkshire publishes its 13F report for the three months to the end of March, we will get more color on Berkshire's recent equity buys.
Berkshire also continued to buy back its own shares during the quarter, although the rate of repurchases has slowed compared to last year. Berkshire bought back stock worth a total of $27.1 billion in 2021, the highest annual level since Buffett began more aggressively repurchasing stock in 2018. However, after spending an average of $7 billion a quarter last year, Berkshire only bought back $3.2 billion of shares in the first quarter.
Buffett has said in the past that he will only use Berkshire's cash to buy back shares if there are no better options available. On that basis, it makes sense that the investor has slowed repurchases this year as he has deployed cash elsewhere.
On top of all the public equity market activity outlined above, Berkshire has also agreed to acquire insurance company Alleghany (Y, Financial) outright for $11.6 billion.
Why is Buffett buying now?
The big question on investors' minds is, why is Buffett now being so active after years of low activity? Maybe he sees more value in the market at the moment, but he might also be looking to deploy as much of Berkshire's cash as possible in an inflationary environment. It's fairly safe to sit on cash and wait for better deals when inflation is only 2%, but when it's pushing the 10% level as it's doing now, holding cash means losing a lot of money.
Even after these buys, Berkshire had more than $100 billion of cash at the end of March. With short-term real interest rates in negative territory, this cash is losing purchasing power every day. Finding something to buy with even minimal pricing power might be a better route, which is something investors should keep an eye on.
