Warren Buffett could have bought any of the 379 companies in the S&P 500 for nearly $78 billion. Instead, he invested it all in his favorite stocks.
Few investors get as much attention on Wall Street as Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) Chief Executive Warren Buffett. That's because the Oracle of Omaha has outperformed Wall Street's benchmark index, the S&P 500 Indexmany times.
Since taking the reins at Berkshire in the mid-1960s, Buffett has overseen an aggregate return on his company's Class A shares of more than 5.4 million percent. By comparison, the S&P 500 has increased in value, including dividends, by about 37,000 percent over the same period.
Buffett's much-hyped recipe for success He has acquired stakes in proven companies that offer clear competitive advantages and strong management teams. Most importantly, he looks to the horizon when he invests and tends to hold positions in the Berkshire Hathaway portfolio for years, if not decades, at a time.
But the Oracle of Omaha is also a staunch advocate of portfolio concentration, meaning that your best ideas deserve a massive investment.
While mirroring Buffett's investment activity has been a money-making strategy for decades, investors will have to do some unconventional research to find their favorite stock to buy.
Warren Buffett has been a very Selective stock buyer for almost two years
No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. Form 13F provides an easy-to-understand overview of the stocks, industries, sectors and trends that Wall Street's top money managers bought and sold in the past quarter.
Warren Buffett's 13 Fs for the past seven quarters (Oct. 1, 2022, to June 30, 2024) show that he and his top investment advisers, Ted Weschler and Todd Combs, have been unabashed sellers, with net stock sales totaling close to $132 billion. With the Berkshire boss sending out roughly $7.2 billion worth of stock, Bank of America Although its shares have been in decline since July 17, it appears to be on track to achieve an eighth consecutive quarter of net equity sales.
However, the 13F forms have highlighted small pockets of selective buying activity. For example, Buffett can't seem to get enough of the integrated energy company Western Oil (NYSE: OXY)Since the beginning of 2022, more than 255.2 million Occidental shares have been purchased.
While a higher spot price for crude oil is typically great news for all drillers, Occidental is especially leveraged in its drilling segment. While its downstream chemical plants can somewhat hedge the drop in the spot oil price, it relies heavily on elevated oil prices to boost operating cash flow from its upstream drilling operations.
Buffett has also been a willing buyer of property and casualty insurance companies. Chubb (NYSE: CB)Chubb is the company that was revealed in mid-May as the “secret” stock in which Berkshire had been building a position since the third quarter of 2023.
Although the insurance business tends to be boring, it is also very profitable. When catastrophe losses inevitably occur, insurers have a tangible reason to raise premiums for their customers. But even when payouts are low, insurers like Chubb retain exceptional power to set premium prices, given that loss claims and catastrophic events are normal, long-term occurrences.
Unfortunately, Berkshire Hathaway's quarterly Forms 13F don't tell the full story about Buffett's favorite stocks to buy.
The Oracle of Omaha has invested almost $78 billion in a stock that is very dear to his heart
Despite owning $13 billion worth of Occidental stock and nearly $8 billion in Chubb, neither holdings are Buffett's most beloved stocks.
This “favorite stock” is a company that the Oracle of Omaha has purchased shares of for 24 consecutive quarters (a six-year span), beginning on June 30, 2024, and in which he has invested nearly $78 billion of his company’s cash.
To demonstrate how much conviction Buffett has in his favorite stock, compare this nearly $78 billion investment to the 500 companies that make up the broad S&P 500 index. As of the close on Sept. 13, 379 S&P 500 companies had a market capitalization smaller than the amount of money Buffett has invested in the stock nearest and dearest to his heart over the past six years. In theory, Buffett could have bought outright Chipotle Mexican Grill, FedExeither Aimbut decided to invest almost $78 billion in a single stock.
The twist is that Buffett's favorite stock to buy is… shares of his own company.
Share repurchase activities are not detailed on Form 13F. Instead, investors typically find Berkshire Hathaway's share repurchase activity highlighted just before the executive certifications page in each quarterly report.
Before July 2018, Buffett was only allowed to buy back shares if the value of his company's stock fell to 120% or less of its book value. Since the stock never fell below that threshold, no buybacks were made.
On July 17, 2018, Berkshire Hathaway's board of directors changed the rules governing buybacks to allow Buffett to work his magic. The new criteria state that buybacks can continue without an end date or limit as long as:
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Berkshire has at least $30 billion in cash, cash equivalents and U.S. Treasury bonds on its balance sheet; and
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Warren Buffett believes that stocks are inherently cheap.
This second point is open to interpretation, leaving Buffett plenty of room to pull the trigger on buybacks whenever he sees fit. With Berkshire’s cash hoard growing to an all-time high of $276.9 billion at the end of June, Buffett has more than enough firepower to continue buying back shares of his own company. The $345 million used for buybacks in the quarter ended in June increased total buybacks since this amendment in July 2018 to nearly $78 billion.
One of the main reasons the Oracle of Omaha is a big proponent of buybacks is because they incentivize long-term investment by gradually increasing the stake of patient investors. As the number of shares outstanding decreases, each remaining share represents a slightly larger stake in the company.
Additionally, buybacks have a way of making most companies that have proven themselves over time more attractive to investors. Companies with stable or growing net income, like Berkshire (with no unrealized investment gains or losses), should see their earnings per share (EPS) increase over time as the number of shares in the company decreases.
While Buffett may be bullish on Occidental Petroleum and Chubb, no other company can compare to his most beloved stock, Berkshire Hathaway.
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Bank of America is an advertising partner of The Ascent, a Motley Fool Company. Sean Williams The Motley Fool has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Chipotle Mexican Grill, FedEx, and Target. The Motley Fool recommends Occidental Petroleum and recommends the following options: September 2024 $52 put options on Chipotle Mexican Grill. The Motley Fool has a Disclosure Policy.
Warren Buffett could have bought any of the 379 companies in the S&P 500 for nearly $78 billion. Instead, he invested it all in his favorite stocks. Originally published by The Motley Fool
