Buffett's Berkshire Continues Stock Sales Amid Succession Transition

Article Highlights

• Buffett sells $6.1 billion in stocks for the third straight quarter.
• Berkshire's cash reserves hit a record $382 billion.
• Greg Abel set to take over as CEO at the end of the year.
• Berkshire acquires Occidental Petroleum's petrochemical unit for $9.7 billion.
• Berkshire's stock performance lags the S&P 500 since Buffett announced his succession plans.

Warren Buffett, the CEO of Berkshire Hathaway (BRK.A.N, BRK.B.N), is reducing the company's stock holdings for the third consecutive year, marking a sign of the approaching end to his tenure leading the massive conglomerate he built and managed for over six decades.

Berkshire Hathaway disclosed last Saturday that it had once again sold $6.1 billion of common stock in the three months ended September 30. Buffett appears to see more opportunities to sell stocks than to buy them, as stock prices in many sectors have risen sharply. In the past three years, Berkshire has sold approximately $184 billion of stocks.

The group's cash reserves continue to climb and reach a record $382 billion, funds that come from a diverse range of businesses spanning insurance, manufacturing, utilities, and one of North America's largest railroads. However, this figure does not include the accruals due on short-term U.S. Treasury investments, which Berkshire indicated were around $23 billion this quarter.

Berkshire has not conducted any share buybacks for five consecutive quarters, as Buffett chooses to continue to wait and see.

Since Buffett, 95, announced he would step down as CEO at the end of this year, the company's stock performance has lagged behind the S&P 500 index. Next January, Greg Abel, a 62-year-old Canadian executive, will take over as CEO, who was previously responsible for Berkshire's non-insurance businesses.

Investors have been closely watching the progress of the succession since Buffett announced his impending retirement at the annual shareholders' meeting in Omaha in May. During this period, Berkshire's Class A high-voting shares have fallen by about 12%, while the S&P 500 index has risen by about 20%.

After many years without major acquisitions, Berkshire finally reached a major deal last month, agreeing to acquire Occidental Petroleum's petrochemical business for $9.7 billion in all cash. This is Abel's first major deal leading the company.

However, some investors remain optimistic. "Greg is perfectly suited to take the reins from Warren," says Chris Bloomstran, president and chief investment officer of Semper Augustus Investments, a Berkshire shareholder. "He fully understands this business, and I think he's the ideal person to run the company."

Buffett had previously told shareholders that more attention should be paid to operating profits, a metric that has been affected by exchange rate fluctuations in recent months. The latest results show that with exchange rate changes factored in, Berkshire's earnings grew by 34% to $13.5 billion.

From an earnings data perspective, part of the profit growth comes from Berkshire's insurance business, where its subsidiary GEICO increased the number of insurance policies in the quarter, and the profits from the entire insurance underwriting business in the past 12 months grew to $2.4 billion, a threefold increase from the previous year.

Although the U.S. hurricane season was relatively mild this year, the company still incurred losses of $1.1 billion due to wildfires in California, where the Los Angeles area was severely damaged.

The group's energy business had a difficult quarter. Berkshire reported a new $100 million provision for wildfire losses. Its utility subsidiary PacifiCorp is still dealing with class-action lawsuits related to the 2020 fires in Oregon and California.

Berkshire is known for its long-term holdings and is one of the largest shareholders in Apple. Although Buffett has not disclosed whether he reduced his stake in the iPhone maker in the third quarter, he has gradually reduced his position in recent years.

Notably, despite selling some investments, Berkshire's total stock investments increased in the quarter to $283 billion.