In 1973, Berkshire Hathaway (BRK.A 1.57%) (BRK.B 1.42%) held its first annual meeting in the cafeteria of one of its subsidiaries and drew a few dozen people. Earlier this month, in the neighborhood of 40,000 people made the trek to Omaha, Nebraska, for Berkshire's annual meeting for a chance to listen to billionaire CEO Warren Buffett speak about his company, the U.S. economy, and his investment philosophy.
Since taking the reins at Berkshire Hathaway in the mid-1960s, Buffett has overseen a greater than 5,050,000% return in his company's Class A shares (BRK.A). This absolutely crushes the roughly 34,700% total return, including dividends, for the broad-based S&P 500 over the same stretch.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Warren Buffett and his team were secretly building a position in Berkshire's $378 billion portfolio
Investors pay close attention to what the "Oracle of Omaha" is saying because mirroring his investments has been a moneymaking strategy for decades. Thankfully, there's an easy way to follow in Buffett's footsteps.
May 15 marked the deadline for institutional investors and money managers with at least $100 million in asset under management to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides a snapshot of what Wall Street's smartest and most-successful asset managers bought and sold in the most recent quarter. Given that Buffett is overseeing a $378 billion investment portfolio at Berkshire, he and his team are most definitely required to file a 13F with the SEC.
However, Berkshire's prior two 13F filings (for the September- and December-ended quarters) contained a clause that granted the company "confidential treatment" for one or more of its securities. This is a fancy way of saying that Warren Buffett and his team requested, and were granted, permission to not reveal the one or more stocks they were building a position in.
The reason for this secrecy is simple: Both professional and everyday investors have a tendency to pile into the stock(s) the Oracle of Omaha and his team are buying. By keeping this stock a mystery, Buffett and his team would have an opportunity to build a stake at a reasonably lower share price.
That stock is a mystery no longer -- albeit it's not the biggest surprise of Berkshire Hathaway's 13F.
Warren Buffett's "confidential treatment" stock is revealed
A few months ago, I pieced together the clues about this "confidential" stock using data from Berkshire Hathaway's operating results, as well as Buffett's historic investment activity. I was able to whittle these mystery candidates down to seven stocks, but ultimately honed in on the wrong one.
Despite selling stakes in other insurers, such as Globe Life and Markel Group, the mystery stock that Berkshire has acquired more than 25.9 million shares of (worth $7.1 billion market value at the time of this writing) since the midpoint of 2023 is Swiss-based property & casualty (P&C) insurance provider Chubb (CB 2.14%).
Warren Buffett and his team know a thing or two about P&C insurers. Berkshire Hathaway owns GEICO, which is one of the largest P&C insurance companies in the country. GEICO also happens to be one of Buffett's all-time great investments.
While the insurance industry can accurately be described as "boring," buying a 6.4% stake in Chubb is right up Warren Buffett's alley.
Though catastrophe losses are an inevitable part of being an insurer, the P&C industry generally enjoys exceptional premium pricing power. If an event occurs that results in higher payouts, insurers can justify raising premiums on their customers. But if payouts are normal or below average, insurers still have the power to increase premiums, with the justification being that they're preparing for the next inevitable loss event.
Insurance companies are also beneficiaries of the Federal Reserve's hawkish monetary policy. Although bringing in more revenue than is paid out in claims is the No. 1 goal for insurers, they also generate interest income on their float -- the revenue they take in that isn't paid out in claims. The fastest pace of rate hikes in four decades has sent short-term Treasury bill yields to around 5%. As long as the prevailing rate of inflation remains above the Fed's long-term target, insurers will benefit from added interest income.
And, of course, there's Chubb's excellent capital-return program. Last week, the company announced it would be raising its base annual payout for a 31st consecutive year.
Further, in June 2023, shortly before Warren Buffett and his team began buying shares, Chubb's board also authorized a new $5 billion share repurchase program. Steadily reducing Chubb's share count will incrementally increase Berkshire Hathaway's ownership stake in the company.
Image source: Getty Images.
This is considerably more surprising than Buffett building a stake in Chubb
However, removing the cloak from Berkshire's growing stake in Chubb wasn't the most surprising takeaway from Berkshire Hathaway's 13F filing with the SEC for the quarter ended in March. Rather, it's the reacceleration we've witnessed in selling activity from Warren Buffett and his team, which included a notable paring of the company's stake in Apple.
Even including the position the Oracle of Omaha and his team have built in Chubb, Berkshire's brightest minds have been net-sellers of equities for six consecutive quarters. Here's how the net-selling activity has shaped up since Oct. 1, 2022:
- Fourth quarter of 2022: $14.64 billion in net-equity sales.
- First quarter of 2023: $10.41 billion in net-equity sales.
- Second quarter of 2023: $7.981 billion in net-equity sales.
- Third quarter of 2023: $5.253 billion in net-equity sales.
- Fourth quarter of 2023: $0.525 billion in net-equity sales.
- First quarter of 2024: $17.281 billion in net-equity sales.
Altogether, Buffett and his top investment aides, Ted Weschler and Todd Combs, have disposed of $56.09 billion more in equities than they've purchased over an 18-month timeline.
Although Warren Buffett is a long-term investor who'll always bet on America's success, it's plainly evident that he and his investment crew aren't finding much in the way of value right now on Wall Street. This can be confirmed by taking a closer look at the S&P 500's Shiller price-to-earnings ratio, which is at one of its highest readings during a bull market rally in history, when back-tested to 1871.
Buffett also noted during his company's annual shareholder meeting that Berkshire's cash pile, which includes U.S. Treasuries, could hit an all-time high of $200 billion in the current quarter. This signals that additional selling is expected.
Until the stock market endures a sizable pullback, we may not witness much in the way of buying activity from the Oracle of Omaha -- and that's something the investment community definitely isn't used to.
