Warren Buffett’s latest $345 million purchase brings his total investment in this stock to nearly $78 billion over 6 years

For nearly six decades, Berkshire Hathaway (BRK.A 1.23%) (BRK.B 1.06%) CEO Warren Buffett has stunned Wall Street with his investing prowess.

Since taking over as head of Berkshire in the mid-1960s, the aptly named “Oracle of Omaha” has overseen a cumulative return on his company’s Class A shares (BRK.A) of more than 5,180,000% and practically doubled value the average annual total return, including dividends, of the reference index S&P 500. When you consistently crush the most followed index in the return column, you will attract an audience.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Buffett’s phenomenal investment returns are what draw in the neighborhood of 40,000 people annually to Berkshire’s annual shareholder meeting in Omaha, Nebraska. It’s also what has investors waiting on pins and needles for the company’s Form 13F release. A 13F is a quarterly filing with the Securities and Exchange Commission (SEC) that shows investors what stocks Wall Street’s brightest minds have bought and sold.

But the biggest surprise isn’t always what’s in the Berkshire Hathaway 13F. Rather, it’s the buying activity for Warren Buffett’s preferred stock that won’t be found in a 13F filed with the SEC.

Buffett has been a net seller of stocks for seven consecutive quarters

Even though Berkshire hasn’t yet filed its 13F for the second quarter — it will be filed with the SEC after the close of trading on Aug. 14 — the company’s second-quarter cash flow statement points to a similar trend we’ve seen. since early October 2022. Namely, Buffett and his top investment aides, Ted Weschler and Todd Combs, have been persistent net sellers of stocks.

Fair value estimate for Berkshire’s position in Applesince the end of the second quarter, indicates a nearly 50% reduction in Berkshire’s stake in the tech giant. In addition, Buffett and his crew sold shares Bank of Americathe second-largest Berkshire holding by market value for 12 consecutive trading sessions (July 17-August 1) as of this writing.

In total, Buffett and Co. have been net sellers of stocks for seven consecutive quarters, with about $131.6 billion more in securities sold than bought. That lifted Berkshire’s cash pile to an all-time high of $277 billion.

To be fair, Buffett and his team did some shopping — it just was very selective.

For example, 13F and Form 4 filings with the SEC show that the Oracle of Omaha has added to its oil and gas stock with some degree of regularity. Occidental Petroleum (OXY 4.31%) from early 2022. In a span of about 30 months, Berkshire’s brightest investment minds gobbled up more than 255.2 million shares of Occidental.

Given the minimal role that energy stocks have played in Berkshire’s investment portfolio this century, having nearly $15 billion tied up in Occidental Petroleum signals that Buffett and his team expect the spot price of crude oil to rise; or at least stay above its historical average.

The biggest catalyst for Occidental Petroleum appears to be tight global crude supply. About three years of reduced capital spending during the COVID-19 pandemic has created a scenario where global energy companies cannot ramp up production quickly. As long as crude oil supply is tight, its spot price should get a boost.

This is especially important for Occidental, which generates a huge percentage of its revenue from its upstream drilling segment. Despite being an integrated operator that also owns chemical plants, its operating cash flow is highly dependent on fluctuations in the spot price of crude oil.

Image source: Getty Images.

The Oracle of Omaha bought nearly $78 billion worth of his preferred stock

However, adding more than 255 million shares of Occidental Petroleum common stock is mere peanuts compared to what Warren Buffett has put to work in his favorite stocks over the past six years.

As we alluded to earlier, not all of Berkshire’s buying and selling activity will be found in a 13F. For details on Oracle of Omaha’s preferred stock to buy, you’ll need to dig into Berkshire Hathaway’s quarterly operating results. Just before the executive certifications of each Berkshire quarterly report, you’ll find a detailed page describing the share repurchase activity undertaken during the quarter. You guessed it… Warren Buffett’s favorite stock to buy is none other than his own company’s stock!

To be clear, buying back shares wasn’t always easy for the Oracle of Omaha or his late great right-hand man, Charlie Munger.

Prior to mid-July 2018, share buybacks were permitted only if Berkshire Hathaway’s share price fell to or below 120% of its book value as of the most recent quarter. At no point in the many years leading up to mid-July 2018 did Buffett’s company fall at or below that threshold, which meant no buybacks were made.

That all officially changed on July 17, 2018. On that date, Berkshire’s board reworked the criteria governing share buybacks to allow Buffett and Munger to get off the proverbial bench and swing for the fences.

Under this updated policy, redemptions may begin without an end date or dollar cap as long as:

• There is at least $30 billion in cash, cash equivalents and U.S. Treasuries on the company’s balance sheet; and
• Buffett believes Berkshire’s stock is intrinsically cheap.

While that last point is a bit subjective, it hasn’t stopped Warren Buffett from buying back his company’s stock for 24 years. consecutive quarters.

During the quarter ending in June, Buffett oversaw the retirement of 555 shares of Class A (BRK.A) worth a total of $345,137,002! On an aggregate basis, that’s nearly $78 billion worth of buybacks since that program was amended on July 17, 2018. That’s more than double the amount of cash Buffett and his team spent buying shares of the main holding company Apple!

BRK.A distributes outstanding YCharts data.

Because Berkshire doesn’t pay dividends, share buybacks are an easy way to reward investors. The continued buyback of shares gradually increases the ownership stakes of long-term shareholders. You could say it’s the perfect tool to instill the long-term ethos in investors that Buffett and Charlie Munger so valued.

Additionally, share repurchases and reductions in outstanding shares can increase earnings per share (EPS) for companies with flat or growing net income (excluding unrealized investment gains/losses). That should make Berkshire even more attractive on a fundamental basis.

With $277 billion in cash in the coffers and little value to pique Warren Buffett’s interest, it’s a near certainty that the (re)buying of Buffett’s favorite stocks will continue.