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Why Warren Buffett's stock portfolio may include a secret holding from this sector

Published 02/27/2024, 10:40 AM
Updated 02/27/2024, 11:32 AM
© Reuters.

Investing.com -- A mystery is swirling around Berkshire Hathaway (NYSE:BRKa) following its latest quarterly earnings.

In the build-up to last weekend's announcement, investors were hoping to discover the identity of the investment giant's most recent purchase. But Berkshire and its boss Warren Buffett left them in suspense -- the stake did not even warrant a mention in Buffett's closely-watched shareholder letter or Berkshire's full results.

Some analysts have posited that Berkshire and Buffett -- one of the most widely-followed and respected voices on Wall Street -- may be aiming to keep the stock confidential to prevent it from receiving attention that could impact its share price.

Markets, relying on a handful of clues gleaned from Berkshire disclosures, have instead only been able to speculate on the secret stock. Analysts widely believe that it is in the financial sector, citing in particular a change in the cost basis for Berkshire's investments.

The conglomerate revealed that the cost basis -- a marker of the original value of an asset -- for its holdings classified as "banks, insurance, and finance" stood at $27.1 billion as of Dec. 31, up from $24.8 billion on Sep. 30 and $23.5 billion on June 30.

Combined, the rise in Berkshire's cost basis for these stocks from June to December is approaching $4 billion. James Shanahan, a senior equity research analyst at Edward Jones, told Investing.com that because federal law currently requires investors who own more than 5% of a company to publicly report the holding, the fact that Berkshire has not revealed the purchase suggests that the nearly-$4 billion increase has yet to surpass that threshold.

"If $4 billion is still less than 5% of the total market capitalization, you would want to think about domestic financial companies [plus a] $70 billion market cap," Shanahan said. "There are not many of those."

However, Berkshire has been selling stakes in financial firms in recent years. In the fourth quarter, Berkshire liquidated positions in insurers Globe Life (NYSE:GL) and Markel Corp (NYSE:MKL), as well as payments company StoneCo Ltd.

Investors may not have to wait much longer to see the stock unmasked. Shanahan said he thinks it will be unveiled at Berkshire's annual meeting on May 4, if the position reaches 5%, or with a securities filing after the close of markets on May 15 -- "whichever comes first."

Berkshire's latest results

Omaha, Nebraska-based Berkshire's reported an all-time high operating profit of $37.4 billion in 2023, buoyed in part by a 28% jump in fourth-quarter income to $8.48 billion.

Powering the gains were solid returns from Berkshire-owned auto insurer Geico, where full-year net underwriting earnings came in at $5.43 billion. Elevated borrowing costs also helped generate $6.1 billion in interest income at the company's insurance division, above the $5.5 billion it brought in from stock dividends.

Berkshire was a net seller of stocks in the fourth quarter, as Buffett struggled to find attractively-priced deals. Berkshire's cash pile subsequently swelled to a record $167.6 billion.

The 93-year old Buffett, meanwhile, moved to reassure investors that Berkshire is "built to last" through even the worst financial disasters. He added that Greg Abel, Berkshire's Vice Chairman and designated successor, was "in all respects ready to be CEO [...] tomorrow."

But in his annual shareholder letter released over the weekend, Buffett noted that Berkshire's share price will likely not see any "eye-popping" performances due to its already massive size. He said that only a handful of firms are capable of "moving the needle" at Berkshire, "and they have been endlessly picked over by us and by others."

Buffett also took time to honor his long-time colleague Charlie Munger, who passed away in November at the age of 99. Buffett called him the "architect" of Berkshire.

Learn more about Warren Buffett

Warren Buffett stands as a titan in the financial world, revered for his unparalleled success in investing. Curious about his journey and the extent of his wealth? Delve into this page to grasp the magnitude of Warren Buffett's net worth. But Buffett's success isn't merely a stroke of luck; it's grounded in his meticulously crafted investment strategy and steadfast adherence to certain rules. Explore this page to uncover the principles guiding Warren Buffett's investment decisions: Warren Buffett's Investment Strategy and Rules.

Intrigued by the companies that have earned a coveted spot in Warren Buffett's portfolio? Discover the holdings that have contributed to his legendary success right here: Warren Buffett's Stock Portfolio. Aspiring investors would do well to heed the wisdom of this financial guru whose strategies have withstood the test of time.

Latest comments

so what's the secret?
Only his hairdresser knows.
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