In case you missed it, one of the most important data releases of the entire quarter occurred two weeks ago. Amid a flurry of earnings reports, Feb. 14 marked the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission.
A 13F provides a snapshot for investors that allows them to see which stocks Wall Street's top money managers purchased and sold in the latest quarter. This can help investors figure out which stocks, industries, sectors, and trends have caught the attention of the most successful asset managers.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
There isn't a billionaire investor whose trading activity is more closely followed than Warren Buffett. In his 60 years as Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) CEO, he's delivered a greater than 6,000,000% return to his company's Class A (BRK.A) shareholders. On an annualized basis, he's practically doubled up the total return (including dividends) of the benchmark S&P 500 since the mid-1960s: 19.9% vs. 10.4%.
But what's often most telling about the Oracle of Omaha's view of the stock market is the trading activity associated with his favorite stock, which investors won't find listed in Berkshire's quarterly 13F.
Unmasking Warren Buffett's favorite stock
If investors were to solely focus on Berkshire's quarterly 13F, they'd come to the conclusion that Apple(NASDAQ: AAPL) or perhaps Occidental Petroleum(NYSE: OXY) is Warren Buffett's favorite stock.
Despite selling 615.6 million shares of Apple between Oct.1, 2023 and Sept. 30, 2024, it's still Berkshire's largest holding by a significant amount. As of the closing bell on Feb. 24, it accounted for 25% of the $297 billion portfolio Buffett and his team oversaw for his company. Berkshire's chief has come to appreciate Apple's innovation, exceptionally strong management team, and the nearly $750 billion it's spent on share buybacks since the start of 2013.
On the other hand, the Oracle of Omaha has purchased almost 265 million shares of integrated oil and gas goliath Occidental Petroleum since 2022 began. This roughly $13.2 billion position signals Buffett's belief that the spot price of crude oil is likely to remain elevated, or perhaps head even higher. Occidental's revenue is heavily weighted to its drilling operations, which would benefit immensely if the price of crude oil moves up.
But on a cost basis -- i.e., how much Buffett spent of his company's capital to get into these positions -- neither Apple nor Occidental Petroleum is Buffett's favorite stock.
The stock Warren Buffett has spent more of his company's capital buying than any other holding is (drumroll)... shares of his own company. Since the midpoint of 2018, Berkshire's billionaire chief has given the green light to roughly $78 billion worth of share repurchases.
Buffett's actions speak volumes
Since Berkshire Hathaway doesn't pay a dividend, share repurchases are one of the easiest ways Buffett can reward investors. Regularly repurchasing Berkshire's stock can reduce the outstanding share count and incrementally increase the ownership stakes of existing investors. This incentivizes the long-term investing approach that Buffett and his late, great right-hand man, Charlie Munger, have preached about for decades.
Buying back stock can also boost Berkshire Hathaway's earnings per share (EPS). Dividing steady or growing net income by a declining outstanding share count should lift EPS over time and make Berkshire's stock more fundamentally attractive to investors.
After Berkshire Hathaway's board amended the company's share buyback program on July 17, 2018, to give its CEO the ability to repurchase stock at his discretion, Buffett took full advantage. For 24 consecutive quarters (July 2018 through June 2024), the Oracle of Omaha repurchased Berkshire Hathaway stock.
But something interesting has happened over the last two quarters: Buffett hasn't spent a dime buying back his company's shares. Despite Berkshire's cash pile hitting respective record highs of $325.2 billion and $334.2 billion, as of Sept. 30 and Dec. 30, Buffett hasn't been a buyer of his favorite stock.
At his core, Warren Buffett is an unwavering value investor. No matter how wonderful a company is or how impressive its competitive advantages are, Berkshire's chief refuses to overpay. This includes not purchasing shares of his own company when it's no longer a relative bargain.
From mid-2018 through mid-2024, Berkshire Hathaway stock spent much of its time vacillating between a 20% and 50% premium relative to its book value. Over the previous two quarters, it's almost exclusively been valued at a 50% to 70% premium to book value.
Image source: Getty Images.
A good deal is becoming tougher to come by on Wall Street
However, Warren Buffett not purchasing shares of his own company for a second consecutive quarter is just the tip of the iceberg.
In each of the previous nine quarters, Berkshire's cash flow statements show that he and his team of advisors have been net sellers of stocks. From Oct. 1, 2022, through Dec. 31, 2024, Buffett has overseen roughly $173 billion worth of net stock sales.
The writing on the wall is plain as day that finding a good deal is becoming increasingly harder for Berkshire's chief.
In a 2001 interview with Fortune magazine, Buffett referred to the market cap to U.S. gross domestic product (GDP) ratio (now known as the "Buffett indicator") as "probably the best single measure of where valuations stand at any given moment."
When back-tested to 1970, the Buffett indicator has averaged a reading of 85%. This is to say that the total value of U.S. stocks has averaged about 85% the value of U.S. GDP.
On Feb. 18, 2025, the Buffett indicator hit an all-time high of 207.46%, which is 144% above its 55-year average. This is how far beyond historic norms stock valuations are at present, and it helps to explain why the Oracle of Omaha is in no hurry to deploy his company's capital into new or existing holdings... or even repurchase shares of his own company's stock!
Buffett's actions, or lack thereof, with his favorite stock are an ominous warning for Wall Street that trouble may be brewing.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
