Warren Buffett made $5 billion from these 3 shares this week; Apple stock among gainers

Warren Buffett made $5 billion from these 3 shares this week; Apple stock among gainers

The billionaire investor, who turned 91 earlier this week, is known for his investing methodology and picking stakes in multi-baggers. (Image: REUTERS)

Warren Buffett’s Berkshire Hataway has made more than $5.21 billion so far this week from just three stocks. The largest contributor to Warren Buffett’s wealth this week was the iPhone maker Apple. As the stock surged higher this week, Buffett’s Berkshire Hataway made billions of dollars, calculated on the basis of Berkshire’s holdings in Apple at the end of last year. The billionaire investor, who turned 91 earlier this week, is known for his investing methodology and picking stakes in multi-baggers.

Berkshire Hathaway owned 907 million shares of Apple at the end of December last year. The value of Apple shares in Berkshire Hathaway’s portfolio back then stood just shy of $121 billion. The same has now soared to $139.44 billion, assuming Warren Buffett and his partner Charlie Munger have not sold any Apple shares since then. Earlier last week, at Friday’s market closing the value of the same, was $134.86 billion, translating to a little over $4.58 billion in profit just this week. So far this year, Apple stock price has soared 18.7%.

Apple is the largest stock holding, in terms of value, for Berkshire Hathaway. At the end of September 2020, Berkshire Hathaway owned 944 million shares of Apple but later Warren Buffett decided to trim some of their holdings in the technology giant. Warren Buffett, earlier this year, acknowledged that selling those Apple shares was a mistake that Charlie Munger had warned him against.

The other stock that helped the Oracle of Omaha pocket profits this week was The Coca-Cola company. Berkshire Hathaway owned 400 million shares of the company at the end of the previous year, valued at $21.93 billion. Since the market closing last Friday, the stock has jumped 2% so far, adding $444 million to Berkshire’s profits. Currently, the value of Coca-cola shares in the Berkshire Hathaway portfolio is $22.7 billion. On a year-to-date basis, the stock is up 7.6%.

Financial Services major Moody’s was the third contributor to Warren Buffet’s portfolio this week. Moody’s share price has jumped 2.08% since last Friday’s closing bell. With this surge in the stock price, The value of Warren Buffett’s Berkshire holdings in the company has zoomed by $193.90 million. Berkshire Hathaway owns 24.66 billion shares of Moody’s, currently valued at $9.51 billion. So far this year, Moody’s share price has jumped 32%.

As Warren Buffett turns 91, the legendary investor prepares Berkshire Hathaway for a new economy

In this article BRK.A

Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway’s annual meeting in 2019. Scott Morgan | Reuters

Before turning 91 on Monday, Warren Buffett has been taking steps to make sure that Berkshire Hathaway — and his eventual successor — will be better positioned to benefit from a technology-driven economy. The conglomerate’s operating business is a patchwork of companies focused on the traditional backbone of the economy, from railroads, to batteries, insurance, home furnishing and retail. Because of the old economy orientation, Berkshire has missed out on the explosive growth seen in the Amazons of the world over the years. But the “Oracle of Omaha” is showing his openness to investments that stray from Berkshire’s old economy core to adapt to the new world. Berkshire’s exposure to technology stocks has grown to 45% of its portfolio thanks to its massive stake in Apple, according to InsiderScore.com. Its Apple investment, first bought in 2016, has ballooned to over $120 billion to become its biggest equity holding by far. Ten years ago, Berkshire’s top equity holdings showed very little tech exposure other than IBM. To bet on growth, Berkshire has dipped into initial public offerings and pre-IPO investments, something the legendary investor once mocked. It’s widely speculated that Buffett’s investment lieutenants Todd Combs and Ted Weschler orchestrated these bets that break with Berkshire tradition.

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“There has been a pretty significant shift in the investment portfolio. Now it’s really geared towards the new economy,” said James Shanahan, Berkshire analyst at Edward Jones. “He has given Todd Combs and Ted Weschler a lot more flexibility and opportunity to get their fingerprints on the business.” Berkshire invested in Brazilian fintech StoneCo within days of its IPO in 2018, and the stake has grown to more than $700 million thanks to a doubling in share price since the market debut. During that year, Berkshire also bought a stake in India’s largest digital payments start-up, Paytm, which has filed for an IPO. In the third quarter of 2020, the conglomerate bought $250 million worth of Snowflake stock at the IPO price and an additional 4.04 million shares from another stockholder at the debut price. In June 2021, Berkshire made a $500 million pre-IPO investment in the parent company of Nubank, a digital bank based in Brazil. Buffett, the man who pioneered buy-and-hold investing, had been vocal about his distaste for buying companies around their market debut. Buffett previously compared buying hyped-up IPOs with trying to win lotteries, arguing they are not a sound basis for an investment. The last major IPO that Buffett bought before the recent spree was the Ford debut back in 1956.

“The equity portfolio today is more dynamic than it was 10 or 15 years ago with the Todds at the helm,” said Cathy Seifert, Berkshire analyst at CFRA Research. “They will certainly dip their toe into the water and nibble at some new economy stocks. Unless you have some exposure to this, it’s difficult to generate alpha, particularly due to the large-cap value-oriented bias they do tend to have.” While increasing its tech exposure to about 45%, Berkshire exited some of its big financial bets recently, including JPMorgan Chase, Wells Fargo and PNC Financial. The conglomerate still owns sizable stakes in American Express and Bank of America as of the end of June.

$100 billion question

For die-hard Buffett watchers, they have been asking the same question year after year — when is he going to finally pull off that “elephant-sized” acquisition? The answer might be disappointing to many, considering his disciplined value approach. “I think what’s kept him from doing anything too aggressively is that he almost doesn’t want to have that last deal that he does — that he is going to be remembered for — be a disaster,” said Greggory Warren, Berkshire analyst at Morningstar. “He doesn’t want to hamstring the next guy running the show by acquiring something that maybe isn’t going to help him.” At the end of June, Berkshire’s cash pile stood at $144 billion, still near a record despite the company’s massive buyback program. For decades, companies used to throw themselves at Buffett, who was among the biggest whales with the most cash, along with private equity firms. As opposed to leveraged buyouts with quick turnovers though, Berkshire has always been a more permanent buyer that also gives companies the autonomy to run their business. However, private equity has been on a tear in recent years with interest rates at record lows, and companies are also courted by a flood of new buyers from special purpose acquisition companies with possibly more attractive offers for going public. Market valuations are near levels seen before the early 2000s dot-com bubble. Particularly, the utility and transmission segment that Berkshire wants to be a consolidator in has become very expensive as these stocks became the go-to names for yield-hungry investors, according to Morningstar’s Warren. “The fact that Berkshire hasn’t done a blockbuster deal, I don’t think investors are going to hold him to that,” Seifert said. “I think they still trust his judgment and acumen particularly given where valuations are now.”

Record buybacks

Instead of deal-making, Berkshire has been focused on returning capital to shareholders. The company repurchased $6 billion of its own stock in the second quarter, bringing the six-month total to $12.6 billion. Berkshire bought a record $24.7 billion of its own stock last year.

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Happy Birthday Warren Buffett: What makes him so famous and successful

A robust framework and the resolve to stick to it:

“I actually have the diploma in the office. And I don’t have my diploma from college, I don’t have my diploma from graduate school, but I have got my Dale Carnegie diploma there because it changed my life,”.

The importance of communication to Buffett can be seen from the significance he places on a public speaking course he took at Dale Carnegie (a workplace training and professional skills development organization) when he was younger.

What Warren Buffett said about Crypto, Robinhoods, and SPACs in May AGM

Simple and direct – I think these are the most important tenants of Buffett’s communication style. It sounds easy to emulate, but it’s really not because most often our parents, schools, colleges, and workplaces push us in the opposite direction.

“The one easy way to become worth 50 percent more than you are now — at least — is to hone your communication skills — both written and verbal… if you can’t communicate, it’s like winking at a girl in the dark — nothing happens. You can have all the brainpower in the world, but you have to be able to transmit it.”

The world’s most famous nonagenarian turns 91 today and it’s always a good time to reflect on what makes him as famous (or successful or rich) as he is – of course, several books (The Warren Buffett Way, by Robert G. Hagstrom, is one that I recommend) have been written on this topic but I am going to try to cover a few points at a high level.

Buffett, much like his mentor i.e., Benjamin Graham, possesses the ability to cut through the fluff and think straight.

The reason why this is probably the most important lesson is that the nature of investing is such that (i) any long-term active investor will witness many periods (sometimes, years) of underperformance, and (ii) every portfolio will have its share of losers. Both apply to Buffett as well.

Instead of falling prey to herd mentality and letting Mr. Market’s prevalent emotional state bias his decision making, he is able to view businesses rationally.

Berkshire’s stock performance has lagged the benchmark in numerous years.

However, a “sound intellectual framework” focused on company fundamentals and the discipline to stick to has meant that the good years, which saw massive outperformance, more than made up for the bad ones.

Buffett has had his share of lemons too. In fact, as always, in the letter he openly admits that he made a big mistake on a $37 billion investment in Precision Castparts (PCC). He famously swore-off investing in airline stocks in the 1990s and early 2000s, referring to himself as an “air-o-holic.” This addiction seems to have reared its ugly head again, because in the throes of the pandemic Berkshire booked a loss on another set of airline stocks in 2020.

Again, for every bad airline investment, Buffett has made famously huge windfalls in the likes of Coca Cola, American Express or Apple. At the end of the day, every investor will make mistakes, the key is to remain undeterred if you have a sound system in place.

Remember, since 1965, Berkshire Hathaway’s shares have returned ~20% annually compared to the ~10% for the benchmark, the S&P 500. In cumulative terms, that is a staggering ~28,00,000% rise vs. ~23,500% for the S&P!

Owner mindset

“….That action increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet. Following criteria Charlie and I have long recommended, we made those purchases because we believed they would both enhance the intrinsic value per share for continuing shareholders.”

The quality of a company’s business is reflected in metrics like growth both in revenue and retained earnings, return on capital, among others. Of course, the price one pays in relation to these metrics is an important factor, but periodic fluctuations in price should not matter much to a fundamentals-focused investor.

Buffett has often emphasized that Berkshire’s portfolio is “a collection of businesses” not just tickers on a screen.

In the same vein, Buffett highlights Berkshire’s property/casualty insurance operations, BNSF and Berkshire Hathaway Energy, among many other privately owned businesses that don’t have daily stock prices. Hence, they probably don’t receive as much attention as Berkshire’s investment portfolio of “marketable stocks”.

However, it is clear from the letter that Berkshire remains focused on investing behind and growing these “family jewels”.

The same philosophy is behind Berkshire’s practice of regularly buying back its own stock. Just in 2020, it repurchased $25 billion worth of its shares. Buffett again chooses to focus his shareholders’ attention on the underlying effect of the action.

Trust and decentralization

Indian promoters are often accused of holding on to control and not delegating enough to professional managers. The Berkshire Hathaway Empire is built on the exact opposite – decentralization.

Over the years as it has expanded into a giant conglomerate, Buffett has made sure that its various subsidiaries (in many of which they own 100% stake) are autonomous units with near complete decision-making powers.

Buffett takes minutes to size people up and deals are often closed on an initial phone call. If Buffett has any doubt regarding sincerity or trustworthiness of a potential associate, he is known to promptly walk away.

A comment by Jim Weber, head of Berkshire unit Brooks Running Company, captures this approach: “I have never been given so much autonomy in my long business career, and have never felt so accountable and responsible.”

In a way, trust is at the heart of Berkshire Hathaway’s and Buffett’s business model.

Circle of competence

“What an investor need is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many.

You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

Buffett’s ability to live within his circle of competence means that he is often able to make important “informed” decisions about companies and industries; being a prodigious reader helps. He is able to avoid businesses he doesn’t understand, and hence doesn’t fall prey to trend-based investing.

He has pointed out how none of the top 20 companies by market cap in 1989 were in the top 20 today. He also highlighted that even in a booming industry over the last century, automobiles, there were over 2000 defunct companies.

By 2009, there were just three left, of which two had been rescued from bankruptcy by the US government.

“…there was a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.”

To end this piece, I want to leave you with words from the man himself that in a way capture the inspiration for starting my own investment firm:

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”.

(The author is Co-founder of Upside AI)

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