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Berkshire Hathaway: Thoughts on the Conglomerate's Gold Buy

·4 mins read

Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) filed its 13F report for the second quarter at the end of last week. The report revealed that the Oracle of Omaha made some significant changes to his equity portfolio during the period.

Investors should note that this filing only provides a snapshot of the portfolio at one point in time. It details the equity positions in the portfolio as of the end of June 2020. It does not include any cash or credit holdings, or any changes made after the quarter ended. We will have to wait for the third quarter 13F for third-quarter updates, which will likely be published around the middle of November.

Berkshire's portfolio changes

One of the changes that has attracted the most attention is the addition of Barrick Gold Corp. (NYSE:GOLD) to Berkshire's large investment portfolio. This position has attracted so much attention because Buffett has said many times in the past that he would never buy gold.

I think it is likely he still holds this view. I have spent a long time studying Buffett and Berkshire, and judging by the size of the position and its place in the portfolio, I think it may have been initiated by Berkshire's other portfolio managers, Todd Combs and Ted Weschler, who have been managing some of the conglomerate's funds alongside the Oracle of Omaha since 2010.

Buffett tends to look after the group's most substantial holdings. He's never presented any specific guidance as to which of the positions he manages directly (and it is unlikely he ever will), but I think it reasonable to assume that any position worth more than $1 billion is under Buffett's supervision. I think positions smaller than that have a higher chance of being managed by Combs and Weschler. Berkshire's Barrick position was worth $560 million at the end of the second quarter, giving it a 0.28% portfolio weight.

Another thing to consider about this holding is we don't know why it was acquired. It could be a bet on the gold price. It could also be a hedging position to another holding or part of a more complex strategy. Positions in 13Fs should never be taken at face value.

Other notable portfolio changes that occurred in the quarter (excluding the airlines) with positions worth more than $1 billion were:

  • Wells Fargo (NYSE:WFC) was reduced by 27%. The position is now out of the top five portfolio holdings, making up just 3% of Berkshire's portfolio.

  • U.S. Bancorp (NYSE:USB) was reduced modestly by less than 1%.

  • Bank of New York Mellon Corp. (NYSE:BK) was reduced by nearly 10% in the second quarter.

  • Charter Communications (NASDAQ:CHTR) was reduced by 4%. It now has a 1.3% portfolio weight. The position is worth nearly $2.7 billion.

  • JPMorgan Chase & Co. (NYSE:JPM) was reduced by 61% to $2.1 billion.

  • Visa (V) was reduced by 5%.

  • Liberty SiriusXM Series C (LSXMK) was increased by 40% to a $1.5 billion position.

  • Mastercard Inc (NYSE:MA) was reduced by 7.5%. It is now a $1.35 billion position with a 0.7% portfolio weight.

These deals show a clear theme. Buffett was selling financials in the second quarter. We will have to wait to find out if he continued this selling in the third quarter.

It's worth keeping in mind what Buffett has said about selling positions before. There are only two reasons to sell: if something better has come along, or if the situation changes.

Disclosure: The author owns shares in Berkshire Hathaway and Wells Fargo.

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This article first appeared on GuruFocus.