Warren Buffett Shows His Fear by Dumping the Most Shares Since 2008

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Warren Buffett Shows His Fear by Dumping the Most Shares Since 2008

By CNBS News

Warren Buffett is signalling wariness with the soaring sharemarket as the billionaire investor extends a selling streak.


Mr Buffett’s Berkshire Hathaway was a net seller of equities for the fourth straight quarter, a trend not seen in data going back to 2008. The company ended up selling almost $US2 billion ($2.7 billion) more in stocks than it purchased during the period, adding to a cash pile that climbed to a record $US149.2 billion.

The selling streak indicates Mr Buffett has struggled to find bargains with the sharemarket hitting record highs. A big, splashy acquisition also eluded the conglomerate, as the 91-year-old and his investing deputies confronted a combination of sky-high price tags and fierce competition from the wave of special purpose acquisition companies.

“The big issue here is that Berkshire was a net seller of stocks again this quarter,” Jim Shanahan, an analyst with Edward Jones, said in a phone interview. “That’s the primary culprit” of the cash pile continuing to rise.

Cutting holdings in banks

Berkshire’s sales appear to have largely come from cutting holdings in banks, insurance and financial investments, according to its third-quarter regulatory filing released on Saturday. Berkshire has been paring certain stocks in recent periods, spending the second quarter trimming its investment in General Motors and pulling back on some of its pharmaceutical bets. The company is set to release its third-quarter stock tweaks this month.

Although Mr Buffett has been a consistent net seller these past four quarters, those sales have been relatively small compared with the huge size of his stock portfolio. Over the past nine months, he has sold almost $US7 billion more stocks than he has bought, roughly 2.2 per cent of the fair value of Berkshire’s stock portfolio at the end of September.

Doubts about SPAC boom

Mr Buffett warned investors in May that Berkshire might not have much luck striking deals as SPACs gripped the market – though he also predicted the boom probably would not last. Compounding the challenge, his most recent big acquisition, the $US37 billion deal for Precision Castparts five years ago, resulted in a writedown that Mr Buffett laid squarely at his own door.

Berkshire is not alone in extending a cash pile amid the pandemic. Amazon.com, Google parent Alphabet and American Airlines Group were among companies that amassed significant holdings during the health crisis in a step analysts have said would probably lead to some acquisitions.

And the rising cash pile is better than the alternative in the eyes of investors, including Cheviot Value Management’s Darren Pollock. Even though Mr Buffett’s cash pile still increased to a record despite the $US7.6 billion of buybacks in the third quarter, Mr Pollock says it is a good sign about the health of Berkshire.

“We’re happy with it because the alternative is that cash isn’t growing as much and that means that Berkshire’s operating companies aren’t of as high quality as we thought,” said Mr Pollock, whose Cheviot owns shares in Berkshire.

“To see that the cash is rising, to see that he’s deploying so much in one avenue which happens to be buybacks – it’s not acquisitions – but it’s being spent in a productive way, it’s so much better than the alternative of seeing that cash stabilise or decline without other large acquisitions.”

Here are some other key takeaways from Berkshire’s third-quarter earnings on Saturday:

Berkshire appetite

Mr Buffett has increasingly leaned on share buybacks as one way to deploy billions of dollars. He’s spent about $US51 billion on stock buybacks since a policy tweak in 2018, outpacing the $US31 billion used to purchase shares of Apple, Berkshire’s largest stock bet.

In the third quarter, Berkshire bought back $US7.6 billion of stock, surpassing the $US6 billion of shares repurchased in the previous period.

BNSF’s record

Record profit at Berkshire’s railroad, BNSF, and strong earnings from its energy businesses helped raise operating profit by 18 per cent at the conglomerate during the third quarter.

That also aided in offsetting a painful quarter for Berkshire’s insurers. Those businesses reported an underwriting loss that widened to $US784 million amid heightened catastrophe costs and worsening claims trends at car insurer Geico.

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