Warren Buffett’s retirement from the position of CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) was well telegraphed. The company had been preparing for Greg Abel to assume the CEO role for years. That included Buffett building up the company’s cash position, leaving Abel with a buffer against adversity and ample firepower if he wanted to make any big moves.
In truth, Abel hasn’t yet made any major moves, but there was a subtle shift in the second quarter worth noting: Berkshire Hathaway went from a net seller of stocks to a net buyer. Here’s what it could mean.
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Getting Berkshire Hathaway’s house in order for Greg Abel
To state the obvious, Greg Abel is not Warren Buffett. While Buffett helped train Abel, Abel will still run Berkshire Hathaway differently from Buffett. For example, Abel is expected to be a more hands-on manager, which has already shown up with Abel’s purchase of Taylor Morrison Home for $5.8 billion. Buffett historically bought businesses and allowed them to operate independently. Abel clearly stated that Taylor Morrison Home would be a key part of Berkshire Hathaway integrating its current homebuilding operations into a single division.
When it comes to Berkshire Hathaway’s portfolio of publicly traded stocks, there was also a subtle shift in the second quarter. After roughly three years of net sales, Berkshire Hathaway bought $23.5 billion worth of equity securities but only sold sold $3.7 billion. So it made nearly $20 billion in investments in the quarter.
As usual with Berkshire Hathaway, there’s likely an opportunistic element here. The company made a large purchase of Alphabet (NASDAQ: GOOG) stock during the tech giant’s secondary offering, as that company looked to fund its artificial intelligence spending. Google accounted for roughly $17 billion of the company’s stock purchases. That said, the shift from net seller to net buyer could also signal something bigger: Berkshire Hathaway’s stock portfolio may be roughly where Greg Abel wants it.
The third quarter will be the big tell for Greg Abel
One quarter is not a trend, so investors shouldn’t read too much into this shift. However, it does set up an interesting dynamic for the third quarter. If there are only modest sales, or even net purchases, it could indicate that Greg Abel is satisfied with Berkshire Hathaway’s stock holdings. Which means he will have put his imprint on the business, notably just as Warren Buffett announced he was stepping away from the role of Chairman of the Board. It increasingly looks like Berkshire Hathaway’s future is Greg Abel’s story to write.
