Warren Buffett is BUYING! Pharmaceuticals in, banks out? (Berkshire Q3 13F)

So last quarter, Warren Buffett certainly, uh, shocked a lot of us with the sheer amount of selling that he did from his portfolio. I remember he sold out of seven positions entirely, which is very unlike Warren Buffett. Four of those positions were the big U.S. airlines; you can remember how big of a story that was at the time.

I remember listening or watching the 2020 Berkshire Hathaway shareholder meeting, which happened just one month into Q2, and Warren Buffett had already said he gave us numbers as to what he was doing in Q2, which showed that at the time he had already sold 6.5 billion dollars' worth of stock in just one month. But he'd only bought about 400 million dollars of stocks. So by the end of Q2, he'd actually done enough selling that he'd reduced the size of Berkshire's portfolio by seven percent.

Now luckily, in Q3, we have seen the tables start to turn, and Warren Buffett is now a net buyer of stocks once again, which is good to see. So overall, while he did still have 12 billion dollars of sales of equity securities in Q3, we also saw Buffett deploy 17.6 billion into the purchase of equity securities. So net, he's put about 4.8 billion dollars into the market in Q3, which is a drastically different tale to what was, uh, what was told in Q2, where overall, he took 12.8 billion out of the market.

So overall, what has Warren Buffett been buying and selling in Q3 of 2020? Well, let's find out.

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So as I just said, Warren Buffett's buys in Q3 did outweigh his sales by about 4.8 billion dollars. However, that number does not include the 9 billion worth of stock buybacks that he did in Q3 as well. I'm not going to be talking about the share repurchases that he did with Berkshire Hathaway in this video. If you want to learn a little bit more about that, I just made a video on it, so you can click the link coming up on the screen right now if you'd like to learn more.

But anyway, here we go. So in Q3 2020, this is what Berkshire Hathaway's stock portfolio looked like at the end of the quarter. Berkshire's portfolio is now worth 228.9 billion dollars; that's up from 202.4 billion in Q2 and definitely up from its lows in Q1 of 175.5 billion dollars.

Now overall, Berkshire, in the quarter, added to four positions, they bought into six new stocks entirely, and they reduced in nine and sold out of one. Now, this is much different to the story of Q2, where they added to four, they bought one, but they reduced in 10 and sold out of seven. So as I said before, lots and lots of selling was going on in Q2, but that has not continued into Q3; more buying than selling, which is good to see from someone like Warren Buffett.

Anyway, so moving on, what were the big news stories to come out of this 13F filing? Well, what's interesting is that when you look at Berkshire Hathaway's portfolio, you shouldn't look at necessarily the percentage added or the percentage reduced for each individual stock. You actually won't get the biggest news stories out of looking at their portfolio that way.

What you should actually do is order the activity in the biggest percentage change to their portfolio, and that leads us to our first big news story of Warren Buffett's Q3 13F filing, and that is that Warren Buffett is definitely trimming his position in Apple. This was definitely the most impactful move on their portfolio in Q3.

So overall, Warren Buffett trimmed the position by 3.7%, which reduced the size of the portfolio by 1.84. Now having said that, this is not actually the craziest news story in the world because overall Apple, remember, Apple holds 47.78% of Berkshire Hathaway's portfolio. So even a small addition or a small trim here and there will actually impact their overall portfolio quite a bit.

So overall, this move takes Berkshire's stake to 944 million shares worth about 109.4 billion dollars at the end of Q3. So I don't actually think that this is too much to worry about, and the reason for that is that if you run Apple through most of your typical valuation models, then basically all of them will spit out that Apple is considerably overvalued at its current share price.

So I would definitely expect, you know, Warren Buffett's way of thinking. I would expect that if I was going to see something in this quarter to do with Apple, it would most likely be him trimming the position as opposed to buying more because he doesn't overpay for his stocks. That's like his number one rule. But even though he did trim this position, it's certainly nothing to worry about because I definitely wasn't expecting him to, say, reduce Apple by 30% or 50% or something like that. Definitely not.

Warren Buffett is still definitely a big believer in Apple stock for the long term. I mean, that's just obviously evidenced by the size of the position that he's got. I mean, he's currently—Apple takes up nearly half of his portfolio, 47.78%, and remember that's 47% of a 230 billion dollar portfolio.

So overall, even though it was a bit of a trim, a three percent trim to Apple, I don't think we've got anything to worry about, even though this was the most significant move for Berkshire Hathaway's portfolio in this quarter.

Anyway, moving on, there is a second news story that's actually a bigger news story than talking about Apple, and that is when we start to look at what Warren Buffett continued to do with his positions in the U.S. financials, in the U.S. banks. So it's interesting to see that out of all the bank positions, Warren Buffett only added to one of them in this quarter, and then the others he either kept the same in some instances, but most of the time he actually reduced his positions and reduced them quite significantly.

So it definitely—that definitely tells me it continues along the trend that we've seen from Buffett over the past few quarters, that Warren Buffett is trying to get less exposure to the U.S. financials. I mean, have a look at this table right here; I've listed how many shares Berkshire currently owns in each of these different financial companies and then the share price at the end of Q3.

If we multiply those two together, we can see the value of each position at the end of Q3. So even right now, there's only one significant investment, and that is obviously in Bank of America at 24 billion dollars. Then if we look, the next biggest is U.S. Bancorp, which comes in at 4.7 billion, then Wells Fargo and Bank of New York Mellon, both between two and three billion dollars each.

Now, they sound like large stakes, right? We're talking in the billions of dollars, but remember, Berkshire's portfolio is worth like 230 billion dollars, so one of them, obviously, the Bank of America position is significant, but the others are actually relatively small.

And we can see that if we actually have a look at what percentage each of these bank positions are in terms of Berkshire's total portfolio. So if we have a look at that, then we can see that Bank of America does take up ten percent of the portfolio— that is a substantial position. But then after that, U.S. Bancorp only takes up two percent, Wells Fargo 1.3 percent, Bank of New York Mellon 1.1.

Consider where all of these positions were at a year ago. So a year ago, we still had Bank of America up at 12.6 percent of the portfolio, but Wells Fargo had nine percent, U.S. Bancorp and JP Morgan held three percent, Bank of New York Mellon held two percent.

So we can see just from these two columns that over the last year or so, Warren Buffett has significantly lightened the load, lightened his exposure to the U.S. banks, and that was definitely the story in Q3 as well. If we have a look at just what he did in Q3, we can see that he's only added to Bank of America; he had 9.2 percent. But then look at the other numbers—reducing 64% in PNC, reducing 95% in JP Morgan, reducing 35% in M&T, and 46% in Wells Fargo.

So all things considered, I actually think this is probably the biggest takeaway from Warren Buffett's 13F: that he continues to significantly lighten the load to the U.S. financials, that is except for Bank of America, which I think he's still in love with. It's the only one that he still likes.

But anyway, moving on, so that's the second big news story. Then moving on into the third big news story, and this is one that we get by looking at Berkshire Hathaway's new buys for the quarter. So there were six of them in total, and if you have a look at these companies, four out of the six were pharmaceutical companies.

So Berkshire Hathaway has now made new positions in Merck, AbbVie, Bristol-Myers Squibb, and Pfizer. And as you can see, the first three of these companies each now occupy about 0.8% of Berkshire Hathaway's portfolio, which represents a rough 1.8 billion investment into each one of them.

And then the Pfizer position is a little bit smaller at about 140 billion dollars. So that position might not have even been Warren Buffett because it is one of those small, you know, million-dollar kind of positions as opposed to the big billion-dollar buyers, because we've got to remember that Ted and Todd also manage smaller sums of money for Berkshire Hathaway.

So it could have been, because it's one of those smaller positions, it could have been an investment made by either Todd or Ted in Pfizer as opposed to Buffett himself. And so a lot of people might jump to the conclusion that these four investments were basically all centered around the pandemic, what we're currently going through, and trying to profit off of that.

However, and I should say I'm no expert in the pharmaceutical industry, however, from what I was reading, it actually seems like these four companies, they don't actually have too much in common. For instance, I was reading a Motley Fool article, and they were saying that Merck and Bristol Myers are heavily into oncology, so study of cancer, whereas AbbVie make Humira, which are injections that help treat systemic inflammatory conditions like rheumatoid arthritis.

And then, as we know, Pfizer is the company that's currently working on the vaccine, but they're also a diversified pharmaceutical company in their own right. So this might just be kind of a diversified play on the whole pharmaceutical industry to try and get some exposure to that industry.

And the Motley Fool do make the point that for all of these companies, they are trading significantly away from their highs that have been seen over the past, say, one, two, three years. So maybe this literally was just a bit of a value play to get some exposure into the pharmaceutical industry.

But overall, they are the big three kind of takeaways from Buffett's Q3 13F filing. In other news, they also bought into T-Mobile, which is a telecommunications company; that position is worth 276 million dollars. So again, that may not have been Warren Buffett; it might have been Ted or Todd. They also bought into Snowflake, which is a cloud-based data warehousing company, and that position is worth 1.5 billion.

And at the other end of the spectrum, they also sold out completely from Costco, so they've gotten rid of the last Costco shares that they held.

So overall, that's kind of the story for Warren Buffett for Berkshire Hathaway for Q3 2020 with their 13F. A few big news stories: number one, definitely I think the biggest takeaway is that Warren Buffett is reducing his exposure, continues to reduce his exposure to the U.S. banks. I just think he just wants less exposure with all that's going on in the current economic climate that we're in; he just wants to keep reducing his exposure, put his money somewhere else.

Second news story: not really a news story, he's just trimming Apple, but obviously that's going to make headlines because it's such a large portion of Berkshire's portfolio. And then third is obviously the play in the pharmaceutical industry, which I'm kind of not sure on.

I'd love to hear your opinion on it: what do you think the play is here? I definitely think that the Pfizer bet is probably from Ted or Todd, and I definitely think it's probably a bit of a vaccine play. But the other three, I tend to believe that they genuinely were Buffett because of the size of the investments in each.

But what's interesting is that, you know, it's not like he sunk 10 billion dollars into one of those companies and then three billion into another and then like 800 million into the third. What's really interesting is that in each of these pharmaceutical companies, the investment size is the same. 1.8 billion has gone into each one of these, so that information kind of leads me to believe that Buffett probably is just getting some sort of diversified exposure to the pharmaceutical industry just in general.

But I'd love to hear what you think; like, I'm a little bit stumped. It doesn't quite—I can't quite kind of figure it out, so I'd love to hear from you guys. Leave your opinions down below. What do you think is going on with Berkshire Hathaway's, you know, new investments into pharmaceuticals? Drop that stuff down in the comments.

And overall, what do you think of the 13F? Is there anything that I haven't covered or that you took out that was different from what I took out of it? I definitely like to hear from you guys, so leave a comment down in the comment section below.

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