Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is one of the most followed investors on Wall Street, and this has everything to do with his surprising outperformance of the benchmark index. S&P 500 Index.
Since taking over as CEO nearly six decades ago, the Oracle of Omaha has overseen a cumulative gain of more than 5.5 million percent on his company’s Class A shares (BRK.A). By comparison, the S&P 500 has delivered a highly respectable but lagging total return, including dividends, of less than 38,000 percent over the same period.
Although Buffett is fallible (he had a rough patch with his company’s involvement in traditional media stocks) Paramount Global — Investors often eagerly await the filing of Berkshire Hathaway’s Form 13F. These are mandatory documents for institutional investors with at least $100 million in assets under management that provide a snapshot of the stocks that were bought and sold in the past quarter.
The funny thing about 13F is that it doesn’t always tell the whole story, especially when it comes to Warren Buffett and Berkshire Hathaway.
Warren Buffett has spent roughly $78 billion buying his favorite stocks since mid-2018
While the 13F analysis has shown that Buffett has been a decisive net seller of stocks in each of the past seven quarters worth an aggregate of nearly $132 billion, there have been selective stocks that have piqued the Berkshire boss’s interest.
For example, Buffett has overseen the purchase of more than 255 million shares of the integrated oil and gas giant. Western Oil since the beginning of 2022.
But when it comes to the cumulative amount of cash Buffett has put to work at Berkshire, nothing beats his favorite stock over the past six years: Berkshire Hathaway. Share buybacks are listed in Berkshire’s quarterly operating results, but they’re not included on the company’s Form 13F.
Share buybacks have not always been a safe option for Buffett or his late confidant Charlie Munger, who died at age 99 in November. Before July 2018, share buybacks were only allowed if Berkshire’s share price fell to or below 120% of book value, as of the most recent quarter. This is a minimum threshold below which Berkshire Hathaway’s stock never fell, which meant Buffett and Munger could not spend a penny on buybacks.
On July 17, 2018, Berkshire’s board of directors amended the rules governing share buybacks to allow its biggest players to step down. The new rules do not set a limit or end date for share buybacks, provided that:
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Berkshire Hathaway 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 his company’s stock is inherently cheap.
With the second criterion up for interpretation, this policy change gave Buffett the green light to (finally) embark on a share buyback program. He has bought Berkshire Hathaway stock for 24 consecutive quarters, including $345 million in the quarter ended in June, and has invested nearly $78 billion in the company nearest and dearest to his heart over the past six years.
Buybacks are an easy way for Buffett to incentivize a long-term mindset in his company’s shareholders, as well as to improve Berkshire’s earnings per share (EPS) over the long term as its number of shares outstanding declines.
While Berkshire Hathaway is undoubtedly Warren Buffett’s favorite stock, there is actually another company in which he spent more of Berkshire’s money buying shares over the past year.
Move over, Berkshire Hathaway: This is Buffett’s best buy of the past year
Over the past four quarters, Buffett has green-lit a little over $6.1 billion worth of his company’s stock buybacks. But since mid-2023, 13F aggregator WhaleWisdom.com’s average cost-basis estimates imply that the Oracle of Omaha has spent about $6.5 billion on buying the property-and-casualty insurer’s stock. Chubb (NYSE: CB).
For those of you who follow Berkshire’s 13F filings closely, Chubb was not always listed as a holding company. Between July 2023 and May 2024, Buffett requested and obtained “confidential treatment” for one of his holdings from regulators. In mid-May 2024, this confidential stock was revealed to be Chubb.
Buffett occasionally resorts to the “confidential treatment” tool when he wants to build up a stake in a company without revealing his cards to regular investors. Since investors tend to accumulate shares of stock that he and his investment lieutenants (Todd Combs and Ted Weschler) are buying, keeping Berkshire’s buying activity “confidential” for a larger stake allows him, in theory, to build up a stake without too steep a share price premium.
So what led the Oracle of Omaha to spend more of his firm’s capital on Chubb than on his favorite stocks over the past year?
For starters, the insurance industry tends to be boring, highly predictable, and highly profitable. While catastrophe losses are inevitable for all insurers, insurers have exceptional power to set premium prices in virtually all contexts. Claims provide a reason to increase premiums, while the inevitability of future claims allows insurers to increase premiums even during periods of below-average payouts.
Insurers like Chubb are also benefiting from a period of above-average interest rates. Insurers invest their float (the premium they collect that is not paid out on claims) in extremely safe, short-term, interest-bearing assets. Even though the Federal Reserve began a rate-easing cycle last week, insurers are generating more from their float than they have in a long time.
In addition, Chubb’s homeowners insurance segment focuses primarily on high-value homes. Like Berkshire, which has been in the market for a long time, American Express Chubb thrives on catering to high-income earners, but it has found a very profitable niche by focusing on high-end home and contents insurance. High-income earners are typically less susceptible to small downturns and inflationary pressures, compared to average-income earners.
Whether Chubb remains a good investment remains to be seen. At the close of trading on Sept. 20, the company’s stock was trading at a 92% premium to book value, a level not seen consistently in more than two decades. While Chubb is growing steadily and serving high-end customers, a 92% premium to book value is a tough pill to swallow.
In other words, don’t be surprised if Buffett’s stake in Chubb has peaked.
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American Express is an advertising partner of The Ascent, a Motley Fool Company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in Berkshire Hathaway and recommends them. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett has bought $78 billion of his favorite stocks, but another time-tested company has been his top purchase over the past year. It was originally published by The Motley Fool