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A Look at Berkshire's New Financial Stock Holdings

The conglomerate's portfolio managers could be gaining more influence over equity holdings

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May 24, 2022
Summary
  • Berkshire's latest portfolio trades are interesting
  • The group's fund managers might becoming more independent
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It's always interesting to see which companies made it into Berkshire Hathaway's (

BRK.A, Financial) (BRK.B, Financial) equity portfolio when it releases its 13F report after the end of each calendar quarter.

Not only does this report give us some insight into where the Oracle of Omaha,

Warren Buffett (Trades, Portfolio), sees value in the current market, but it also provides some insight into where his portfolio managers are investing. Berkshire's portfolio managers, Todd Combs and Ted Ted Weschler, are becoming increasingly important to the group.

When they first arrived at the business, the two managers only oversaw a couple of billion dollars of capital. Today, the amount is closer to $40 billion, and they will take over from the Oracle when he decides to step down.

As such, the investment decisions these managers make today give us an insight into how they will act in the future and the sorts of companies and sectors they prefer to own.

Indeed, it is already becoming clear how the styles of these investment managers differ from that of Buffett. While the CEO of Berkshire has historically concentrated on consumer companies, a sector he knows well, these managers have a preference for financial stocks. They also appear willing to take more risks, investing in smaller enterprises and international fintech groups such as StoneCo Ltd. (

STNE, Financial).

Personally, I do not see anything wrong with this approach. Buffett and

Charlie Munger (Trades, Portfolio) have always advised investors to invest within their circle of competence and not deviate from this circle in an attempt to achieve higher returns.

Combs and Weschler do seem to be following that mentality. If both managers are students of Buffett and Munger, they will likely be great stewards of Berkshire's capital as the business moves on to the next stage in its life.

Identifying portfolio holdings

We can typically identify which holdings are those of Combs and Weschler in the portfolio by size. Buffett has said that a position worth $1 billion or more has to get his permission. Therefore, we can assume that any holdings above $1 billion have at least some involvement from the Oracle, though I don't think it's unreasonable to say these figures are fluid. It could be the case that Buffett is becoming laxer about their position sizing as he gets to know the managers and their styles.

Two new holdings that appeared on Berkshire's 13F report for the quarter ended March 2022 are Ally Financial Inc. (

ALLY, Financial) and Markel Corp. (MKL, Financial). Worth $390 million and $620 million, respectively, these positions appear to be Combs and Weschler holdings, and they also fall squarely within their circle of competence.

Markel is often described as a baby Berkshire. The insurance conglomerate is building a track record of deploying capital from the insurance business into new ventures, building shareholder equity through sensible investing. The group also owns a portfolio of equities managed by renowned value investor

Tom Gayner (Trades, Portfolio). Around 14% of the portfolio is invested in different classes of Berkshire stock, with other high-quality names such as Amazon (AMZN, Financial) and Alphabet (GOOG, Financial) also featuring in the top 10.

The only question I have about the holding is why Berkshire didn't take a position earlier. It's a company that falls squarely within all of the managers' circle of competence, and the insurance giant has compounded book value at 12% per annum over the past 20 years. Considering these factors, one could argue that Berkshire now believes the business is undervalued compared to its potential. That would explain why it has stayed away from the business for so long and has only just built a position.

Ally also seems to be a quality compounder. The company has compounded book value per share by 9% annually over the past six years.

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Disclosures

I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure
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