Warren Buffett has been selling into this stock market rally for the past one year

Published Tue, Nov 16 20213:04 PM EST

Warren Buffett's Berkshire Hathaway has been a net seller of stocks for the past four straight quarters as the legendary value investor sees few bargains among surging equities, filings show. "Investment activity has been minimal," said James Shanahan, Berkshire Hathaway analyst at Edward Jones. "I found it frustrating that he hasn't seen much value in the markets. Since [ the spring of 2020] there have been no points over the following year did he identify anything that he perceived to be attractive to acquire with the exception of his own stock." Buffett has been selling into this stock market rally that has come despite lingering Covid-19 cases, surging inflation and worries about supply chain shocks. And the rally has continued even as the Federal Reserve has hinted at removal of ultra-easy policies. The S & P 500 has rallied 30% in 12 months, notching more than 60 record highs. His selling streak, coupled with a lack of deal-making, pushed Berkshire's cash pile to a new record of $149.2 billion at the end of September. Buffett hasn't made a sizable acquisition in the last few years as valuations hit record highs and the deal-making environment turned competitive given the rise of private equity and SPACs. His portfolio remains highly concentrated. The conglomerate's top 10 holdings now represent about 89% of equity investments and have stayed relatively the same for the past year. What moves Buffett is making The one big investment over the past year that Buffett made has been his own stock. Berkshire repurchased $7.6 billion of its own stock in the third quarter, bringing the year-to-date total to $20.2 billion. The conglomerate bought a record $24.7 billion of its own stock last year. He hasn't totally been sitting on his hands. In the third quarter, Berkshire pared back its exposure to the pharmaceutical industry . The company exited its position in Merck and Organon & Co. , while decreasing its bets on AbbVie and Bristol-Myers. But that doesn't mean the conglomerate lost faith in the sector as Berkshire built a $475 million stake in Royalty Pharma , owning more than 13,000 shares at the end of September. The conglomerate also added a near $100 million bet on Floor & Decor Holdings . However, we should note these two new stakes are small and could be the work of his investing lieutenants Todd Combs and Ted Weschler. "Once again, Berkshire did not do much buying in the quarter," Michael Phillips, Morgan Stanley's analyst covering Berkshire, said in a note. "The company has continued to keep capital on the sideline as market valuations have continued to rise." Big sales Buffett's sale of airline stocks has been the most dramatic move in recent years. After he revealed the sale during Berkshire's annual meeting in 2020, the airline stocks subsequently rallied and critics said it was a questionable trade by the legendary investor as he missed out on the massive rebound. "A lot of investors, beginning in March of 2020, were buying stocks because they've gotten cheap enough and he was still really nervous leading all the way up to the annual meeting," Shanahan said. "It's fair to say that he missed a lot of opportunities in the spring of 2020. He left a lot of money on the table by selling airline stocks and financial stocks that depressed in value." Nonetheless, investors can't complain too much about Buffett not chasing this rally. Through putting the capital to work by share buybacks, Buffett is making a bet on a conglomerate that's primed to benefit from the economic recovery from Covid-19 because of its exposure to the railroad, utilities, housing and insurance industries. The conglomerate's existing biggest holdings — Apple and Bank of America − have also been very strong performers over the past year, up 25% and 70%, respectively. Berkshire's stock has wiped out pandemic losses and reached a new record high. Though its 22% gain in the last 12 months is trailing the S & P 500.

Warren Buffett at Berkshire Hathaway's annual meeting in Los Angeles, California. May 1, 2021.

Gerard Miller

Warren Buffett's Berkshire Hathaway has been a net seller of stocks for the past four straight quarters as the legendary value investor sees few bargains among surging equities, filings show.