Warren Buffett Just Made a Huge $6.7B Investment.

Over the past few months, Warren Buffett has been hiding something: a secret stock, a secret position that was deliberately not disclosed to the public in his periodic 13F filings. And the SEC let him do it. They gave Buffett permission to buy up a stock and keep the news away from the prying eyes of us fellow value investors.

Now, this is not typical, but occasionally the SEC has granted Berkshire Hathaway privacy privileges so that they can get their money into a position before the Buffett effect takes hold. They let Buffett do this back in 2020 with Verizon and Chevron as well. If you don't know, the Buffett effect is essentially the fact that as soon as it becomes public knowledge that Berkshire is buying a stock, the shares instantaneously rise quite a bit because investors flood in simply due to the fact that they know Warren Buffett is buying. He's basically got a money-printing superpower at this point.

But it also makes sense that Buffett thus likes to keep these new stocks under wraps so that he can get all of his money into the company before it becomes public information. So that's what's happened this time around. But this one was extremely secretive. Even before the Berkshire meeting just a few weeks back, this was actually on the list of topics that CNBC particularly wanted to grill Buffett on. But on the day, nothing mysteriously emitted—no mention of it.

Well, now the cat is out of the bag because Buffett has recently released his Q1 13F filing, and in it, he disclosed the position, which is actually the ninth biggest holding in the Berkshire portfolio. What is it? The stock in question is Chubb Limited. Leading up to the Berkshire meeting, some people had guessed it might have been an insurance company. If you look at Berkshire's Q1 filing where they detail the cost bases of their investments, you can see the cost bases for banks, insurance, and finance positions rose by a few billion dollars, whereas the other categories all shrunk from Q4 to Q1.

Some keen-eyed followers did see something coming, but of course, we didn't know for sure. But now we do. So what is Chubb, and why is Buffett buying it? Well, Chubb is a global insurance company that provides a broad range of insurance products and services, including commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance. They're all-rounders as well, serving big multinational corporations as well as midsize and small businesses and individuals.

They are, as I said before, a global company with operations in 54 countries. However, when we look at their insurance premiums by geography, you can see that 52% of their revenue comes in from the United States, with Asia in second place at 19% and Europe, the Middle East, and Africa at 17%. So a lot of their revenue comes just from the US. Now, I also want to show you a little bit of business performance as well to show you maybe some of the positives Buffett saw in this stock.

But in doing so, I do need to remind you that this is general advice only, and it may not be right for you. In discussing these facts, I do not at all intend to imply a buy, hold, or sell recommendation on the business. But with that said, why might Buffett have been interested in this business? Well, it obviously passes the first hurdle of circle of competence. Buffett started his career buying insurance companies like National Indemnity and Geico, and these businesses have really been at the core of Berkshire Hathaway ever since. He gets insurance; it's in his wheelhouse, and he can understand it. So that's the first check.

It's also a large enough business to shift the needle for Berkshire; that's the other important thing. Berkshire, in many ways, is hamstrung these days due to the size of the company. They're looking to invest billions of dollars at a time, which naturally limits the total pool of companies out there that will shift the needle for Berkshire. For example, if Chubb had a market cap of a few billion, Buffett simply wouldn't bother looking at it because any investment simply wouldn't impact Berkshire enough. But luckily, Chubb has a market cap of just over $100 billion, so yes, it is big enough—tick.

But then the other thing I noticed, just on my quick analysis of the company, is that this company has been growing revenues—have been growing really consistently over time—showing a compound annual growth rate of 11% over the past 10 years. Operating income is up and to the right, as is net income, which shows the 13.65% compound annual growth rate over the last 10 years. Even turning to the present in Q1, their net income was up 13.3% year-over-year. Property and casualty premiums written were also up 13.3% year-over-year. Commercial insurance was up 11.1%, and consumer insurance was up 19.3%.

PNC underwriting income was up 15.4%, and life insurance premiums written are 26.3%. So all the major parts of their business are humming at the moment. That leads me to the other reason I can imagine Buffett liked what he saw: it's also very consistent. Some companies can grow well over a 10-year period, but in between the start and the end, you know, the shareholders go on a bit of a roller coaster ride. That's never been Buffett's style; he likes predictability and stability. Looking at the 10-year numbers, you definitely get that with Chubb.

Then beyond growth, they also have a really strong balance sheet. The company consistently maintains healthy capital and liquidity, which ensures it always has the ability to not only meet the policyholder obligations, but it can also withstand financial shocks. As you can see from this slide, the company has total assets of $234 billion, including total investments of $14.4 billion, with net loss reserves of $61.2 billion. That's the money the company sets aside for future claims, and that's always what Buffett focuses on when he talks about Berkshire's cash position.

He notes that while it's more than it needs to be, he will always keep at least $30 billion on the sidelines and even more in U.S. Treasuries to protect the company from a major shock where a lot of claims need to be paid out at once. So all in all, I'm certainly no insurance expert, but Chubb seems quite aligned with Buffett's circle of competence and investment philosophy as well.

Then, the last thing from there is really the valuation, which despite the stock being at all-time highs, clearly didn't phase Buffett. I can't really add much flavor on valuation because insurance companies are well outside my area of expertise. But I did want to shout out my friend Daniel Pronk, who recently did a video on this topic as well, and he noted that Chubb's price to earnings of around 11 is low versus the business's average PE of 15 over the past decade. This does seem favorable, especially considering the current growth of the business.

Another metric he noted is the earnings yield, which tells us what percentage of the share price gets covered by the business's earnings, and that is up around 9%, which is obviously favorable compared to U.S. Treasuries at around 5%. Just looking at Berkshire's buy prices, clearly, it was good enough for Buffett: the price of around $29, which was the average buy price in Q3 2023, and around $229, which was the high price in Q4, where he bought the vast majority of his shares. Overall, Berkshire bought 8.1 million shares worth $1.7 billion. By the end of September 2023, the position was then increased to 20.1 million shares valued at $4.5 billion by December 2023, and by the end of March 2024, Berkshire had amassed nearly 26 million shares of Chubb totaling $6.7 billion, which represents approximately 6.4% of Chubb's total market cap.

All in all, the stock now sits as Buffett's ninth largest holding—so overall, it was a pretty big one. So that's a bit of a look into why Buffett may have potentially bought into Chubb. But I think beyond all the statistics, it also just comes down to the business model. Buffett loves insurance companies, and there's one overarching reason behind it, and it's the concept of float. In insurance, the business is you take people's money up front, then you get to invest it and turn that upfront money into even more money for yourself.

A lot of the time, you don't even have to give the people their money back. Yes, some claims will obviously be made, but if you're disciplined in the underwriting process and you keep that under control, for the most part, you're being given free money to invest. It's great, and that's what Buffett has called the engine room of Berkshire Hathaway in the past; it's the insurance float that has really kept that business going for a very long time.

So beyond the numbers and the analysis, I think the number one reason Buffett bought Chubb is because he loves the business model, and it expands Berkshire's portfolio of insurance businesses. That was definitely the number one takeaway from Buffett's 13F filing.

Other notable changes include that 13% reduction of Apple, but I've, of course, covered that in a dedicated video when I was in Omaha, so the link for that should be coming up on your screen now. Buffett's thinking here is that he is quite wary of big rises in the corporate tax rate potentially coming soon, so he's happy to lock in some profits now at the 21% rate while Apple's stock price is pretty high versus whatever the tax rate might be hiked to in the future.

The reason he's so okay with locking in profits now and actually reducing his stake is because he said himself that he's happy holding onto more cash right now. I know that's not a very Warren Buffett-like take, but he did say that with everything going on in the world at the moment, he's happy to sit on more cash. He didn't elaborate to explain what in particular is worrying him. He did mention that the fiscal deficit worries him, but that was more talking about the expected hikes in the corporate tax rate.

But he did indeed say that he's happy holding onto more cash right now at a time where he's already sitting on $189 billion. So that was what he had to say on the 13% reduction in Apple. In other news, Buffett also added 51% to his Liberty SiriusXM Series C position and 62% to his Series A position, so he seems to be doubling down on that risky arbitrage opportunity, which again I covered in a dedicated video, which I'll chuck up on screen now.

The quick rundown on this one is that it was announced late last year that SiriusXM Holdings and Liberty SiriusXM, which is one of the tracking stocks of Liberty Media that actually owns 83% of SiriusXM shares, are going to merge to simplify the ownership structure of SiriusXM. In that situation, with the subtle differences in market cap between SiriusXM and Liberty SiriusXM, it makes sense that as those two entities merge into one, that value gap will close. Berkshire just stands to capitalize on that, and it's either Buffett or Ted Weschler that are overseeing that play.

I've heard a lot of speculation that this one was, in fact, Ted, who actually got to meet in Omaha this year, which is pretty cool. But yes, overall time will tell how that one plays out for Berkshire. Then from there, the last notable change in the Berkshire portfolio this quarter was the 88% reduction in Paramount Global, which interestingly was actually addressed by Buffett himself during the Berkshire meeting a few weeks back because he wanted to take full responsibility for what has been a pretty terrible investment.

Incidentally, I should just throw this out since there's been speculation on who sold; I was 100% responsible for the Paramount decision. I read speculation that either Ted or Todd had some involvement in that. No, it was 100% my decision; we sold it all, and we lost quite a bit of money, and that happens in this business too.

Actually owning Paramount made me think even further about the whole question of what people do with their leisure time and you know, what the governing principles are of running an entertainment business of any sort, whether it's sports or movies or whatever it might be. I think I'm smarter now than I was a couple of years ago, but I also think I'm poorer because I acquired the knowledge in the manner I did. But I just want to be very clear that hey, we lost money on Paramount, and I did it all by myself, folks.

So Buffett first bought Paramount in Q1 of 2022, likely somewhere between $30 and $40. Today the shares sit at just $12, so definitely, as they say, a learning experience for Warren Buffett. But that's also why I like Buffett so much as a manager. He didn't have to address this; he could have just let it go, and you know, probably the blame in the media would have gone on Ted or Todd. But no, he deliberately wanted to address it to take full responsibility for that investment himself.

That's why I like Warren Buffett so much as a manager. But anyway, guys, overall, they are the key takeaways from Warren Buffett's 13F filing this time around. Hope you enjoyed the video; it was a bit more of a deep dive than usual. Definitely leave a like on it if you did enjoy it and subscribe to the channel if you've not done so already. If you're interested in learning the Warren Buffett approach—the actual investing approach that he follows from start to finish—we've got "Introduction to Stock Analysis," which is available over on New Money Education.

Six hours of professionally edited and scripted content teaching you the full Buffett approach, including three valuation methods. So definitely check that out if that's something of interest. But apart from that, guys, thanks very much for watching, and I'll see you all in the next video.

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