Berkshire’s Portfolio is Heavily Concentrated In Banks
Every quarter, investors pour through Berkshire Hathaway’s (BRKA) investment portfolio to know what the “Oracle of Omaha”, Warren Buffett bought or sold. For more than a half century, Buffett has delivered a compound return EXCEEDING 20%. Buffett is considered the greatest investor of all time.
Berkshire Hathaway reports its investment holdings once a quarter. For the latest quarter, ending September 30th, 2018, BRKA reported these top holdings. (https://www.cnbc.com/2018/11/14/here-are-warren-buffetts-10-biggest-holdings-now-half-are-banks.html).
Readers of Markonomics101 will recognize a great many of these companies. In fact, out of the top ten, 7 are in the Dow Jones Industrial Average (DOW).
Seven of the 10 are Financials. The other 3 are consumer products companies.
Readers will also recognize that many of these names, and FINANCIALS in particular, are leading the markets lower. “Collapsing Financials Lead Stock Markets Lower”. (https://markonomics101.com/2018/12/08/collapsing-financials-lead-stock-markets-lower/).
In fact, the odds of a VIOLENT financial panic are rising daily. “Is Another Financial System Crisis Dead Ahead?” (https://markonomics101.com/2018/12/06/is-another-financial-system-crisis-dead-ahead/).
Buffett’s bet on Banks is a sizable, not-at-all diversified risk. A decade of Zero Interest Rates was a boom to the Banks and Berkshire’s portfolio. But what goes up…..
Berkshire’s PORTFOLIO Has Taken A Big Hit – But Not Its STOCK….YET!
As you can see from the chart, the BRKA stock has broken a long run Up Trend and is forming a DOME Top Reversal.
However, it has not yet broken support, closing today at $288,000 PER SHARE.
How Is Berkshire’s Portfolio Performing?
Berkshire’s portfolio is very likely to have changed very little since September 30th. According to its recent filing, BRK had a long term investment portfolio of $239 Billion as of September 30th, 2018. The Top Ten Holdings were worth about $177 Billion or 74% of that total. Buffett places large long term “bets” to seek return, rather than diversify to mitigate risk. That trade-off may now work against him.
The concentration in Financials and Apple may prove very costly to BRK shareholders and put a nick in Buffett’s reputation. As of today’s close, BRK is only 14% below its all time highs at $335,000. Its portfolio however, is well into a “BEAR MARKET”.
If we use today’s closing prices, Berkshire’s Top Holdings have lost 21% since September 30 or $37 Billion! If we assume the entire investment portfolio is down a similar 21%, BRK has lost $50 Billion! ($239 B x 21% = $50 B).
At $288,000 per share, BRK is 5th in market capitalization with about $475 Billion. This places it below ONLY the Four Horsemen of the Nasdaq Apocalypse: Apple (AAPL), Amazon (AMZN), Google (GOOGL) and Microsoft (MSFT). “Tipping Point (Part 2): The Four Horsemen of the Nasdaq Collapse”. (https://markonomics101.com/2018/08/23/tipping-point-part-2-the-four-horsemen-of-the-nasdaq-collapse/).
BRK had tangible assets of $261 Billion as of September 30th. However, if the intra-period mark-to-market loss is included, tangible assets fall to $211 Billion ($261 B – $50 B = $211 B).
Berkshire had $83 Billion in Debt, rated AA by both Standard & Poor’s and Moody’s. Berkshire trades at a HUGE premium to the tangible value of its assets, possibly because investors assign a premium for Buffet’s skills. As of the close today, BRK traded at 2.644 TIMES TANGIBLE ASSET VALUE. ($211 B x 2.644 = $557 B – $83 B = $475 B.)
Berkshire Returns To Earth
Buffett’s formula for sticking with solid companies, with excellent management teams, may prove costly. The major indexes, such as the Dow, may still have near term exposure of an ADDITIONAL 20-25% lower. “The BEAR MARKET for Equities Shifts Into High Gear (Charts of the Day 5)”. (https://markonomics101.com/2018/12/20/the-bear-market-for-equities-shifts-into-high-gear-charts-of-the-day-5/).
If Buffett has $211 Billion invested at today’s closing prices, an additional markdown of 20-25% would produce a further loss of roughly $40-$50 Billion. Will Buffett stay “long term” in the face of massive losses?
At the very least, it would be logical to expect the Buffett “premium” to largely come out of BRKA. Yes, it has operations in Insurance and Real Estate, but the Company is similar to a VERY LARGE Closed End Mutual Fund. In fact, no fund is larger than Buffet’s $211 Billion. Here’s the problem: To whom do you sell?
In an environment growing more illiquid by the day, being large becomes a HUGE disadvantage.
I hope you are enjoying these analyses. The only way to navigate these times without losing your shirt is to “Be Informed, Not Misled!”
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