Berkshire Hathaway: What to Know About Warren’s Warren Buffet, the CEO of Berkshire Hathaway, has not only been successful in the stock market for over fifty years but can be said to have thoroughly beaten the S&P 500 index. Although the S&P 500 has returned over 38,000% to the investors since the 1960s, under the leadership of Buffet investment firm Berkshire hathaway, Class A shares of the company have returned inescapably along the lines of over 5,500,000% in the same period. Nicknamed as the “Sage of Omaha”, Warren has many adherents among investors who wish to follow in his footsteps.
Investors willing to take a leaf from Warren Buffet can do so by following some of his SEC filings including Form 13Fs, and Form 4s, and the quarterly reports of the management of Berkshire Hathaway. These documents show the trades undertaken by Mr Buffett and his investing crew, thus providing insights into his blueprints. However, these filings have recently exhibited a certain trend: Over the past two years, Buffett, other members of his investing team, including development cornerstones Ted Weschler and Todd Combs, have sold out of stocks net $166 billion more than they have purchased. This suggests that a cautious stance is being adopted, which is focused on limited investments.
One notable shift has been Berkshire Hathaway’s activity in financial stocks. While Buffett has significantly reduced the company’s stake in Bank of America, selling over 266 million shares for about $10.52 billion, he remains active in the financial sector. This reduction has led some investors to speculate on the reasons behind the decision. Buffett’s comments at Berkshire’s annual shareholder meeting in May hinted at concerns over corporate taxation, suggesting he believes the corporate tax rate may increase in the future. By realizing some gains now, Berkshire may save on future taxes if rates do rise.
Nevertheless, there could be additional factors influencing this divestment aside from the effects of tax. Bank of America has always been wary of interest rate changes. Bank of America has previously reaped the benefits of interest rates from the Federal Reserve raising rates in the period between 2022-2023, but is now under threat with the Fed’s dovish stance which may reduce interest income, thereby affecting the bank’s performance. The decision may also have been influenced by his philosophy on investments that have turned out to. Berkshire’s pillar of The S&P 500 which is the Shiller P/E ratio is currently above 37 meaning that it’s over two times the average historical range thus making the current market expensive.
Amongst all this upheaval, there is one equity, or rather a stock, which Buffett has never disappointed himself in ever going out to buy – Berkshire Hathaway itself. Mr. Buffett has spent almost $78 billion for the sole purpose of buying back shares of Berkshire’s stock since 2018. Well, such buying does not show up in normal SEC reports such as Form 13F or Form 4.
Rather, this is indicated in the operating results of the third quarter report of Berkshire Hathaway showing how committed he is to his company. As of that period, he was previously prevented from repurchasing shares unless they traded at less than 120 percent of book value. Then in mid-2018 there was a policy reform that eased restrictions on share buybacks as long as the company has $30 billion in cash/ cash equivalents and Buffett believes the shares are cheap. This rigidity has allowed him to buy back shares through the years without fail.
During the quarter which ended in June, Buffett implemented a total of $345 million in share buybacks which made the total amount of buybacks since 2018 at nearly $78 billion. However, for the first time in 25 quarters, he did not purchase Berkshire shares notably in the quarter ended September 30th. This continuing buyback policy is exceptional, for it is a strategy that has not been deployed for any other equity within Berkshire’s sprawling $312 billion investment portfolio.
Berkshire does not pay any dividends to its investors, thus implementing buybacks becomes an alternative way to create value for shareholders. By decreasing the available shares, old shares increase the percentage of ownership of every shareholder in the company. This practice also seeks to improve the earnings per share (EPS) of Berkshire, a cornerstone of its policy on increasing operating income for the company. Regularly buying back shares reinforces the intrinsic value of the company, which is in accordance with Buffett’s principle of focusing on building the core value of the business.
All these have persuaded us at Towar to conclude that in these circumstances, strategically influenced actions are warranted. Yes, some changes have come, for instance, certain financial positions, such as Bank of America, have been reduced, but he stayed relatively strong on Berkshire Hathaway and saw merit even in those conditions. This tactic is also evidence of a long-standing commitment to increasing value for shareholders over the long term and trust in the company he has built.
