Buffett’s Big Moves in the Third Quarter

It is once again time to analyze and scrutinize the additions and subtractions the world’s biggest money managers are making to their portfolios.
Hedge funds and other major asset managers have to report their portfolio changes to the Securities and Exchange Commission through 13F filings. By perusing through 13Fs, we can get valuable insights into how the biggest and most influential investors see the market and their personal holdings.

Berkshire Makes a Major Purchase

Warren Buffett, arguably the most famous investor of all time, recently filed a 13F as chairman of Berkshire Hathaway (NYSE: BRK-B).
The biggest addition to Berkshire’s portfolio last quarter was in oil giant Phillips 66 (NYSE: PSX), which Berkshire bought in a previously announced transaction. Berkshire owns approximately 10% of Phillips 66, and it’s easy to see why.
As an oil refiner, Phillips 66 is largely insulated from the carnage sweeping through the oil and gas industry. That’s because as a business, oil refining actually tends to improve when oil prices decline. Falling oil prices reduce refining feedstock costs, which boosts margins.
For example, Phillips 66’s adjusted earnings are up 21% year-to-date through the third quarter.
With all its cash, Phillips 66 showers its investors with cash returns. The stock pays a solid 2.5% dividend, and the company recently announced a $2 billion addition to its share buyback program.

Notable Reductions

Buffett didn’t just buy stocks last quarter; he also made a few notable sells. First, Berkshire cut its stake in asset management firm Goldman Sachs (NYSE: GS). As of Sept. 30, Berkshire owned just under 11 million shares of Goldman, down from around 12.6 million on June 30.
Next, Buffett reduced Berkshire’s holdings of struggling retail giant Wal-Mart (NYSE: WMT). The challenges Wal-Mart is facing are well known. It is suffering from a poor brand image in the United States and is losing market share to rivals.
At the end of the third quarter, Berkshire held 56.2 million shares of Wal-Mart, down from around 60.4 million at the end of the previous quarter.
On the other hand, Goldman Sachs does not have many operating challenges right now. Quite the opposite: Goldman Sachs’ tangible book value is up 5% since the beginning of the year.
One possible explanation for Berkshire’s portfolio sales is the upcoming $37 billion acquisition of Precision Castparts (NYSE: PCP). By selling shares of a few stocks, Berkshire can free up valuable capital to put toward the massive acquisition. This will reduce the amount of new debt that Berkshire would have to incur to finance the deal.

The Bottom Line on Buffett’s Big Moves

Warren Buffett, aka the Oracle of Omaha, has amassed a fortune for himself and Berkshire Hathaway shareholders by buying high-quality stocks at reasonable prices, then holding on to them for years.
While Berkshire doesn’t always hold every investment forever – as is evident by its quarterly 13F filings – it was once again a net buyer last quarter. That speaks to Buffett’s personal investment philosophy of buying when stocks go down and investors become most fearful.
But there are certain stocks that Berkshire Hathaway will almost certainly be holding long after Buffett passes the CEO baton to his successor. Click here for several picks that have the Buffett long-term seal of approval.