Warren Buffett Doubles Down On Major Reversal In Investing Strategy

Warren Buffett jumped back into the stock market again in Q3, after net selling in Q2, and spent a record amount buying back Berkshire Hathaway (BRKB) shares.

In quarterly results released Saturday, the company reported share buybacks of about $9 billion, a total that exceeds any full-year amount in Berkshire’s history, according to Bloomberg. Analysts were expecting just $3.2 billion.

The Q3 repurchases were also a big jump from the $5.1 billion in Q2. At the time, that was more than double the prior quarterly record of $2.2 billion in Q4 2019 and a shift from slower stock repurchases of $1.7 billion in Q1.

Berkshire loosened rules for Buffett to buy back shares in 2018. With Berkshire steadfastly cautious on M&A in recent years, investors have been clamoring for more repurchases.

But as recently as May, Buffett argued repurchases weren’t more attractive than other money moves, saying the stock price had not fallen to “where it really feels way better to us than other things, including the option value of money, to step up in a big, big way.”

Now, the latest buybacks cement a major reversal in Buffett’s investment strategy, which previously shunned hefty repurchases. Year to date, Berkshire Hathaway has bought back $16 billion in stock.

Meanwhile, Berkshire Hathaway was a net buyer of other stocks, adding $4.8 billion to its closely watched portfolio. That followed Q2’s $13 billion in stock sales, the most in more than a decade, as Buffett cashed out all his airline stocks.

With the surge in buybacks and other stock purchases, Berkshire’s cash pile dipped to $145.7 billion from a record high of $146.6 billion in Q2.

Warren Buffett Stocks Net $25 Billion

In Q3, Berkshire Hathaway stock turned in an impressive 19% return after several underwhelming quarters. That owed in big part to soaring shares of Apple (AAPL) and Amazon (AMZN), key holdings in Berkshire’s equity investment portfolio.

But this year through Nov. 5, the company’s Class B shares have fallen 8.4%, vs. a 10.4% rise in the S&P 500 index over the same period. Berkshire Hathaway stock closed below the 50-day line Friday as it works on a 223.34 cup-with-handle buy point. The relative strength line is lagging.

With Apple stock and other holdings surging, Berkshire’s stock portfolio booked nearly $25 billion in gains. That more than offset operating profit declines in the conglomerate’s broad range of companies, which include insurer Geico, rail giant BNSF and aerospace suppliers Precision Castparts.

Loosening Purse Strings

Along with the surge in buybacks, Buffett has shown other signs that he’s putting more money to work, after warning about the pandemic in May.

In one of his latest big investments, he plowed about $6 billion into five leading Japanese trading companies in the quarter. The Berkshire Hathaway chief also nibbled and nibbled at Bank of America (BAC) shares, spending about $2.1 billion in total. Also in Q3, Buffett unusually made a $570 investment in the Snowflake (SNOW) IPO.

Snowflake is a cloud-based data-warehousing company. Buffett is famously an investor who buys proven stocks with long-term value, and the Snowflake investment may be tied to Buffett deputy Todd Comb.

Still, Berkshire has yet to make a megadeal during the coronavirus stock market rout or pullbacks, and its last big buy was the $37 billion Precision Castparts purchase in 2016.

source: investors.com

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