After reading through Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) third-quarter earnings report several days ago, I speculated that the conglomerate, led by Warren Buffett (Trades, Portfolio), had spent around $12.6 billion buying equities for its securities portfolio.
At the time, it was not clear which stocks Buffett had bought because quarterly 10-Q reports do not go into such detail. We have to wait for the quarterly 13F filing with the Securities and Exchange Commission to discover the exact changes to the equity portfolio Berkshire Hathaway, and indeed any hedge fund with more than $100 million in assets under management, has made.
Berkshire's 13F was filed yesterday and, as suspected, the company acquired a significant number of shares in Bank of America (BAC, Financial) during the quarter.
Bank buying
I initially speculated that Berkshire spent an estimated $6 billion of its cash pile adding to its existing Bank of America position between July and September. According to the 13F, Buffett did indeed boost his position in the company by 29.2%, around 200 million shares. This position now accounts for 11.7% of Berkshire's equity portfolio, making it the second-largest holding after Apple (AAPL, Financial). The average reported price for this position: $29.46 per share.
What's interesting about Berkshire Hathaway portfolio today is that the top two positions, Bank of America and Apple, are relatively new investments. Relatively new compared to the likes of Coca-Cola (KO, Financial) and American Express (AXP, Financial), which have been vital Buffett holdings for decades. I think it is interesting because it shows how the Oracle of Omaha's view of the market has changed over the last 10 years. Out go the old holdings, holdings that have relied on their brand value for years, and instead, we have Bank of America and Apple, both of which you can argue don't have particularly strong brand values, but they have very sticky products. OK, so Apple might have strong brand value, but in the highly competitive smartphone world, it is losing market share. Apple users who rely on the company's infrastructure are unlikely to switch, however, and services are becoming an increasingly important part of the business model.
It is also notable that Buffett has massively increased his weighting toward the financial sector over the past several quarters. As well as building the position in Bank of America, he increased his position in U.S. Bancorp (USB, Financial) by 24% and Goldman Sachs (GS, Financial) by 39%. He also started building a new position in JPMorgan (JPM, Financial).
During the quarter, Berkshire Hathaway acquired 35.7 million shares of JP Morgan, worth just over $4 billion. According to my estimates, these additions amount to around $12 billion, which roughly accounts for all of the $12.6 billion Berkshire spent on equities between July and September. Berkshire's overall equity portfolio is worth roughly $220 billion. A $12 billion, or 5.5%, swing toward financials in just one quarter is a notable change and, if anything, tells us where Buffett thinks interest rates are going.
These portfolio changes might tell us more about the direction Buffett wants Berkshire to take after he's gone.
As well as buying financial stocks publicly, in the past few months Berkshire Hathaway has also invested $300 million into StoneCo Ltd. (STNE, Financial), a Brazilian payment processor, and roughly another $300 million in Indian payment giant Paytm. Both of these investments have been linked to Todd Combs, one of Buffett's two investing lieutenants who he has given more freedom to invest recently. Combs joined Berkshire Hathaway in 2010 from his own hedge fund, which specialized in financial stocks. Buffett is leaning heavily on his experience in this sector to help guide his investments in both the public and private markets.
Could this mean the Oracle of Omaha is planning to make Combs Berkshire's leading investment manager when he's gone? Only time will tell.
It is an exciting trend that is evolving nonetheless.
Disclosure: The author owns shares of Berkshire Hathaway.
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