According to Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) latest SEC filing, Warren Buffett and company had an active fourth quarter in 2016. After sitting on a company record $85 billion cash hoard at the end of the third quarter, and having said that Berkshire spent $12 billion on common stocks in the wake of Donald Trump's election victory, investors have been wondering what Berkshire has been up to. Here's the answer.
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What Berkshire has been buying
While we don't necessarily know the reasoning behind Berkshire's latest investments, or whether they were initiated by Warren Buffett himself or one of his trusted stock pickers, we do know what changed in Berkshire's portfolio during the fourth quarter. Here are the most notable buys:
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1. Apple -- Berkshire already owned Apple (NASDAQ: AAPL), although the company's $2 billion stake wasn't a large amount by Berkshire's standards. During the fourth quarter, Berkshire's Apple stake nearly quadrupled to about 57 million shares, which represent more than 1% of all the outstanding Apple stock. It's interesting to note that Buffett's stock-pickers were the ones who initiated the Apple investment, but given the size of the increase, the latest Apple addition could have come from Buffett himself.
This investment did not surprise me at all. I've written before how Apple still represented a compelling bargain at the price levels it was trading for during the fourth quarter, and that Berkshire should take advantage. Well, apparently, management agreed.
2. Airlines -- Berkshire surprised many investors when it revealed its third-quarter 2016 investments in several airline stocks. After all, Buffett has spoken out against airline stocks as investments several times in his career,
During the third quarter, Berkshire invested in American Airlines, Delta, and United Continental, and increased its stake in all three during the fourth quarter. At the same time the initial airline stakes were revealed, Buffett also said he made an investment in Southwest Airlines. He didn't specify the amount at the time, but we now know it's a stake worth more than $2 billion.
3. Monsanto -- Berkshire revealed a new stake in Monsanto, of about eight million shares valued at about $872 million. Monsanto currently trades for about $109 per share, and the company plans to sell itself to Bayer for $128. If the deal goes through, Buffett stands to make a quick profit, but the market doesn't seem convinced at this point.
4. Sirius XM -- The final major change was the addition of a nearly 167 million share position in satellite radio operator Sirius XM. Granted, because of the company's $4.80 share price as of this writing, this stake translates into a relatively small (for Berkshire) $800 million investment.
What Berkshire has been selling
1. Wal-Mart -- Buffett has been gradually trimming his Wal-Mart stake for some time, but he sold a substantial number of his remaining shares. Berkshire's investment in the retail giant has been cut from about 13 million shares to 1.4 million. As I've mentioned, we don't know the reasoning, but my guess is that the success of online retailers like Amazon has changed the competitive landscape in a way Buffett doesn't like.
2. Verizon -- Berkshire sold nearly all of its 15 million shares of Verizon during the quarter. Since Berkshire also unloaded its AT&T stake earlier in 2016, this didn't come as a huge surprise to me.
3. Kinder Morgan -- Buffett bought about 20 million shares of Kinder Morgan in early 2016, and sold his entire position during the fourth quarter. Kinder Morgan has nearly doubled from its early 2016 lows, so this could be a matter of the valuation simply not looking attractive to Buffett anymore.
4. Deere -- Just like Kinder Morgan, Deere has rallied sharply, up by about 43% over the past year alone. So, while we don't know for sure, this sale could potentially be due to a valuation issue as well.
Should you follow Buffett's moves?
Not necessarily. For one thing, by the time we even hear about what Buffett is doing, it can be a completely different market. Since the fourth quarter ended, the S&P has risen by more than 4%, and some of the stocks Buffett has bought have risen even higher than that. Apple, for example, has risen by nearly 17% since the end of 2016, and Apple was trading even cheaper for much of the quarter. While I don't necessarily think Apple is too expensive to buy right now, it's fair to say that Buffett and company likely got a far better deal on their Apple shares than investors could get now.
In addition, while it can be fun to speculate, we don't really know why Buffett bought or sold any of these stocks. For that reason, it's important to do your own research and make your investment decisions based on what's best for you and your long-term investing strategy -- not just because a billionaire did it first.
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Matthew Frankel owns shares of Apple, AT and T, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Kinder Morgan. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.