Berkshire Hathaway is shifting its investment strategy, as evidenced by its recent activities. After 14 consecutive quarters of being a net seller, the conglomerate became a net buyer of equities in the second quarter, purchasing $23.5 billion worth of stocks while selling $3.7 billion, resulting in a net buying activity of nearly $20 billion. This aggressive investment approach has led to a reduction in its cash reserves from nearly $400 billion to approximately $365 billion by June 30.
This renewed investment aggression, particularly under Greg Abel's leadership, includes significant moves such as a $36.6 billion investment in Alphabet, making it Berkshire's third-largest holding. Other notable investments include increasing stakes in D.R. Horton, Delta, Lennar, and The New York Times, alongside trimming Bank of America and eliminating Constellation Brands. The company also repurchased about $4.5 billion of its own shares in the second quarter and another $3.3 billion in July, indicating that management sees its stock as good value.
Operating profits also strengthened, rising 16% to $12.98 billion, supported by its BNSF Railway, Berkshire Hathaway Energy, and manufacturing, service, and retail businesses, despite weaker insurance results. Analysts like Cathy Seifert of CFRA view these results as Greg Abel "slowly, gradually and subtly" asserting himself as Berkshire's new leader, with Warren Buffett's continued influence.
Berkshire's strategy also includes leveraging its substantial financial reserves for strategic acquisitions, such as the $8.5 billion purchase of homebuilder Taylor Morrison (or $9.7 billion for Occidental, depending on the report). This positions Berkshire as a potential consolidator in fragmented industries like homebuilding, acting as a business-builder and a private equity fund with an infinite time horizon. Its unique structure, including a large equity portfolio tolerated by regulators due to its deep financial reserves, allows it to take concentrated positions in companies, providing opportunities for long-term outperformance.
Overall, Berkshire Hathaway offers a less volatile, tax-efficient investment option compared to the S&P 500, often described as a no-fee mutual fund that is unlikely to significantly out or underperform the S&P 500 over long periods. While it has traded somewhat in line with the S&P 500 property-casualty index, its renewed aggressive investment and acquisition strategy suggests a focus on acting more decisively on its convictions and utilizing its access to cheap capital for growth.
