Berkshire Hathaway’s big mystery stock bet could soon be revealed

Berkshire Hathawayled by legendary investor Warren Buffett, has made a confidential bet on the financial sector since the third quarter of last year.

The identity of the stock – or shares – that Berkshire picked up could be revealed Saturday at the company’s annual shareholder meeting in Omaha, Nebraska.

That’s because unless Berkshire is granted confidential treatment on the investment for the third quarter in a row, the stake will be disclosed in filings later this month. So Berkshire’s 93-year-old CEO could decide to explain his motivations to the thousands of investors flocking to the meeting.

The bet, shrouded in mystery, has captivated Berkshire investors from the start popped up in the revelations late last year. At a time when Buffett was a net seller of stocks and complained about a lack of opportunities that could “really move” the needle at Berkshire,” he’s apparently found something he likes — and financially, no less.

That’s an area he has dialed back in recent years amid concerns about rising loan defaults. High interest rates have taken a toll on some financial players, such as regional U.S. banks, while returns on Berkshire’s pile of cash in instruments like government bonds have suddenly become attractive.

“When you’re the GOAT of investing, people are interested in what you think is right,” says Glenview Trust Co. Chief Investment Officer Bill Stone, with an acronym for “greatest of all time.” “What makes it even more exciting is that banks are in his circle of competence.”

Under Buffett, Berkshire did just that defeated the S&P 500 over nearly six decades with a compound annual gain of 19.8%, compared to the index’s 10.2% annual gain.

Berkshire requested anonymity for the trades because if the stock was known before the conglomerate finished building its position, others would also dig into the stock, driving the price up. David Kasa finance professor at the University of Maryland.

Buffett is said to own about 90% of Berkshire’s massive stock portfolio, leaving his deputies Todd Combs and Ted Weschler to hold the rest, Kass said.

While the investment disclosures don’t give a clue as to what the stock might be, Stone, Kass and other Buffett watchers believe it’s a multibillion-dollar bet on a financial name.

That’s because the cost base of banks, insurers and financial stocks the company owns rose by $3.59 billion in the second half of last year, the only category that rose, according to separate Berkshire figures. files.

At the same time, Berkshire exited financial names by dumping insurers Markel And Globe lifeleading investors to estimate the bet could be as high as $4 billion or $5 billion through the end of 2023. It is unknown whether that bet was focused on one company or spread across multiple companies in an industry.

If it were a classic Buffett bet – a big bet in one company – then that stock would have to be big, with perhaps a market cap of $100 billion. Ownership of at least 5% in listed American companies is the trigger revelation requirements.

Investors have been speculating for months about what the stock could be. Finance includes all kinds of businesses, from private lenders to Wall Street brokers, payment companies and various insurance industries.

Charles Schwab or Morgan Stanley could fit the bill James Shanahanan Edward Jones analyst covering banks and Berkshire Hathaway.

“Schwab was defeated last year during the regional banking crisis. They had a problem with retail investors trading their cash for higher yielding investments,” Shanahan said. “Nobody wanted to own that name last year, so Buffett could have bought as much as he wanted.”

Other names that have been circulated – JPMorgan Chase or Black rockfor example, are possible, but may be less meaningful given valuations or business mix. Truist and other higher quality regional banks could also fit Buffett’s parameters, as well as those of insurers AIGShanahan said, although their market cap is smaller.

Berkshire has owned financial names for decades, and Buffett has repeatedly stepped in to inject capital and confidence into the sector.

Buffett served as CEO of scandal-hit Salomon Brothers in the early 1990s to help turn the company around. He pumped in $5 billion Goldman Sachsin 2008 and another $5 billion in bank of Americain 2011, eventually becoming the latter’s largest shareholder.

But after loading up on lenders in 2018, from universal banks like JPMorgan to regional lenders like PNC financial And American bankhe deeply reduced his exposure to the sector in 2020 over concerns that the coronavirus pandemic would punish the industry.

Since then, he and his deputies have largely avoided expanding his financial interests beyond modest positions in the financial sector Citi Group And Capital One.

Last May, Buffett told shareholders to expect more turbulence in the banking industry. He said Berkshire could deploy more capital into the sector if necessary.

“The situation in banking is very similar to what it has always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes not.”

Wherever he places his bet, the move will be seen as a boost for the company, and perhaps even the sector, given Buffett’s track record of identifying value.

It’s unclear how long regulators will allow Berkshire to shield its measures.

“I’m hopeful he will reveal the name and talk about the strategy behind it,” Shanahan said. “While the SEC’s patience may be wearing thin, at some point it will appear that Berkshire is receiving favorable treatment.”

– CNBC’s Yun Li contributed to this report.