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

berkshire hathawayThe company, led by legendary investor Warren Buffett, has been making secret bets against the financial industry since the third quarter of last year.

The identity of the shares Berkshire is buying could be revealed at the company’s annual shareholder meeting in Omaha, Nebraska, on Saturday.

That’s because unless Berkshire is granted investment confidentiality for three consecutive quarters, the shares will be disclosed in a filing later this month. So the 93-year-old Berkshire CEO may decide to explain his rationale to the thousands of investors gathered at the rally.

The bet is shrouded in mystery and has captivated Berkshire investors since it was first disclosed late last year. Buffett, who was a net seller of stocks and bemoaned the lack of opportunities to “really move Berkshire,” appears to have found what he loves — in finance.

He has focused on this area in recent years due to concerns about rising loan defaults. While high interest rates are hurting some financial players, including regional U.S. banks, the yield on Berkshire’s cash piled up in products like Treasury bills has suddenly become attractive.

“When you’re at the top of the investment world, people are interested in what you think is good,” said Bill Stone, Glenview Trust’s chief investment officer, using the best acronym ever. He said. “What’s even more interesting is that banks are in his circle of competence.”

Under Buffett, Berkshire has outperformed the S&P 500 index for nearly 60 years, with a compound annual return of 19.8%, compared to the S&P 500’s 10.2% annual gain.

David Kass, a finance professor at the University of Maryland, said Berkshire requested anonymity to discuss the trade because if the stock price were known before the conglomerate had finished building its position, other companies could similarly inflate their prices. This is because it pushes up prices.

Mr. Buffett controls about 90% of Berkshire’s vast stock portfolio, Mr. Kass said, with the rest left to Mr. Buffett’s representatives Todd Combs and Ted Weschler.

Investment disclosures give no clue as to what the stock is, but Stone, Kass and other Buffett watchers believe it’s a multibillion-dollar bet on a financial name.

Berkshire’s cost base in banks, insurance companies and financial stocks jumped by $3.59 billion in the second half of last year, making them the only category that increased, according to a separate filing.

At the same time, Berkshire retreated from its financial name by dumping insurance companies. markel and globe lifeInvestors therefore speculate that the bet could reach $4 billion or $5 billion by the end of 2023. It is unclear whether the bet was placed on one company or spread across multiple companies within the industry.

If it’s a classic Buffett bet, a big bet on a single company, the stock has to be large, with a market capitalization of perhaps $100 billion. Disclosure requirements are triggered when a U.S.-listed company owns at least 5%.

Investors have been speculating for months about what this stock would be like. Finance covers all types of businesses, from private lenders to Wall Street brokers, payment companies, and various areas of insurance.

charles schwab or morgan stanley That could be the case, said James Shanahan, an Edward Jones analyst who covers banks and Berkshire Hathaway.

“Schwab was devastated by last year’s regional banking crisis and had problems with retail investors selling their cash into higher-yielding investments,” Shanahan said. “No one wanted to own that name last year, so Mr. Buffett could have bought as many as he wanted.”

Other names that have spread — JP Morgan Chase or black rockFor example, it is possible, but it may not make much sense considering valuation and business mix. Trustee In addition to insurance companies, other higher-quality local banks could fit into Buffett’s parameters. A.I.G.says Shanahan, but the market capitalization is small.

Berkshire has owned the financial brand for decades, and Buffett has stepped in many times to inject capital and confidence into the industry.

Buffett served as CEO of scandal-hit Salomon Brothers in the early 1990s and was instrumental in turning the company around.he poured in $5 billion goldman sachs An additional $5 billion will be committed in 2008. american bank It acquired the company in 2011 and eventually became the latter’s largest shareholder.

However, after increasing the number of financial institutions in 2018, from universal banks like JP Morgan to regional financial institutions such as PNC Financial and us bankhe significantly reduced his exposure to the sector in 2020 due to concerns that the coronavirus pandemic would hit the industry.

Since then, he and his agents have largely avoided increasing their financial interests, other than modest positions in the financial sector. citygroup and capital one.

Last May, Buffett told shareholders to expect further disruption in the banking industry. He said Berkshire could inject more capital into the industry if needed.

“The situation in the banking industry is very similar to the banking industry in the past in that fear is contagious,” Buffett said. “Historically, sometimes that fear was justified and sometimes it wasn’t.”

The move could be seen as a boost for the company, and by extension, the industry, given Buffett’s track record of finding value no matter where he bets.

It’s unclear how long regulators will allow Berkshire to protect its move.

“I’m hoping he’ll come forward and talk about the strategy behind it,” Shanahan said. “The SEC’s patience may run out, and at some point it will appear that Berkshire is being favored.”

—CNBC’s Yun Li contributed to this report.