Buffett Bets $66 Billion On Stock (Not Apple)

Since 2018, Warren Buffett and Charlie Munger have been acquiring shares of a company that is not disclosed in Berkshire Hathaway 13F filings. In its most recent disclosures, Berkshire revealed it had bought shares of Apple, Louisiana Pacific and Paramount Global, while dumping shares of Taiwan Semiconductor, US Bancorp, Bank of New York Mellon, Chevron, McKesson, Activision Blizzard and Ally Financial.

But none of these transactions revealed a nearly $3 billion purchase made that brought the total share purchases in one stock to $66 billion over the past 5 years. What’s the company? Buffett’s own Berkshire Hathaway.

Key Points

  1. Warren Buffett’s largest investment over the past 5 years has been buying back shares of Berkshire Hathaway, amounting to almost $66 billion.
  2. Although Berkshire shares have risen by approximately 50% since 2018, they are still significantly undervalued.
  3. Berkshire shareholders enjoy a virtual put option due to Buffett and Munger’s repurchase plan.

Buffett’s Largest Bet

Buffett’s Apple holding gets a lot of attention. And it should. It represents about 41% of his roughly $300 billion equity holding. But Buffett didn’t spend $120 billion buying Apple. His cost basis is closer to $31 billion.

So his $66 billion share buyback of Class A Berkshire Hathaway shares is actually an astonishing investment that signals to investors he’s at least twice as confident in the prospects of his own firm versus his largest public equity holding, Apple.

Prior to 2018, Buffett and Munger were only authorized to buy back shares of Berkshire if they fell below 120% of book value. But Class A shares of Berkshire never fell below these levels over the prior few years. So, over the summer of 2018, the Board gave Buffett more leniency to repurchase shares.

Under the new authorization, Buffett and Munger could scoop up Berkshire shares if they were below intrinsic value and the company had over $30 billion in cash and cash equivalents on the balance sheet.

Clearly, Buffett and Munger viewed Berkshire shares as being undervalued. They proceeded to buy $66 billion worth of share, including a nearly $3 billion purchase of almost 4,300 Class A shares in the most recent quarter.

After spending so much over the past 5 years, is Berkshire still a deal? We investigated.

Is Berkshire Undervalued?

No doubt, Berkshire has had a great run of late when compared to the overall stock market. In 2021 when the S&P 500 roared higher by 28.7%, Berkshire eclipsed it by posting a 29.6% gain. And last year when the market gave up most of those gains and plunged 18.1%, Berkshire shares rose by 4%, relatively outperforming the broader based index by the proverbial country mile.

Still, when we dug into the numbers we arrived at a startling conclusion. Even though Berkshire shares are up by approximately 50% since 2018, they are significantly undervalued still. According to our calculations, Berkshire Class A shares have a fair value of $593,000 per share and B shares have a fair value of $393 per share. Those estimates would suggest that Berkshire could rise by another 26-27% before hitting a valuation ceiling.

They also would imply that, just like in the past quarter, Buffett and Munger may not be done buying back shares of Berkshire. If anything, they are poised to repurchase even more shares when the price dips. For investors, that means an effective put option lies under a Berkshire shareholding. If shares dip by a large amount, shareholders can confidently expect Buffett and Munger to step in and buy shares, creating a bid, and a price floor.

The bottom line is Berkshire share price has limited downside and, even if it does fall precipitously for some unexpected reason, it should bounce back quickly when its top brass steps in to buy shares.