The New Guard at Berkshire Hathaway: Mystery and Continuity in the Portfolio Update

Berkshire Hathaway’s recent 13F filing has left investors with more questions than answers about the new direction of Warren Buffett’s successor, Greg Abel. A substantial reduction in stocks was expected, but the introduction of Delta Air Lines and Macy’s, along with the mystery surrounding their inclusion, has sparked a flurry of analysis and speculation.

The reintroduction of Delta to the portfolio after a six-year absence is particularly intriguing, given Warren Buffett’s past struggles with airline stocks. His 2016 return to the sector was money-losing, suggesting he might be reluctant to give Delta a third chance. However, reports indicate that Buffett was not involved in the decision to buy into Delta, leaving many to wonder who made this call and why.

Berkshire’s continued investment in airlines is notable, despite past setbacks. The company’s “love affair” with the sector, as described by The Wall Street Journal, suggests a commitment to long-term value that may be difficult for investors to understand. Greg Abel’s involvement in Berkshire’s Japanese investments for several years raises questions about whether he is simply continuing Buffett’s legacy or forging his own way.

The addition of Delta and Macy’s highlights the complexities of Berkshire’s investment process. With Warren Buffett still coming into the office five days a week as chairman, but reportedly not involved in day-to-day decision-making, it’s unclear how much influence he has over new investments. The Oracle’s assertion that he will only do what Abel thinks is “right” suggests a level of deference to his successor, leaving room for speculation about who ultimately makes key decisions.

The inclusion of Delta and Macy’s may also be seen as a nod to Berkshire’s commitment to value investing. Andrew Bary notes in Barron’s that Weschler, Berkshire’s remaining portfolio manager, has a “value bent” and that Delta is the industry leader valued at around 10 times earnings. While this may be seen as a shrewd investment move, it also raises questions about whether Berkshire is simply following established patterns or taking calculated risks.

Berkshire’s $2.6 billion stake in Delta now stands at $3.0 billion, with a 14.5% increase from the end of the first quarter. This may be seen as a short-term success, but it also raises questions about whether Weschler’s increased authority and responsibility within the company are being reflected in his investment decisions.

The reintroduction of Macy’s to the portfolio is similarly intriguing, particularly in light of Buffett’s own investments in the retail sector in the past. Berkshire’s new position in Macy’s is valued at just $63 million, compared to Delta’s $3.0 billion stake, suggesting a smaller-scale investment aimed at taking advantage of undervalued assets.

In contrast to the controversy surrounding the inclusion of Delta and Macy’s, Berkshire’s continued investment in Japan has gone relatively unremarked upon. The company’s Mitsubishi and Sumitomo stakes have increased to 11.1% and 10.3%, respectively, with a total value of almost $46 billion. This represents a significant commitment to the Japanese market that is likely to continue under Abel’s leadership.

As investors look to the future, one thing is clear: Berkshire Hathaway remains a complex and multifaceted investment entity driven by the interplay between its various stakeholders and portfolio managers. While the mystery surrounding Delta and Macy’s may be resolved in time, it’s unlikely that we’ll ever have a full understanding of all the factors at play within the company.

Berkshire’s commitment to value investing and its continued presence in key sectors will undoubtedly remain a source of fascination for investors and analysts alike. Whether Abel is forging his own path or following in Buffett’s footsteps remains an open question, but one thing is certain: Berkshire Hathaway remains an enigma that continues to captivate and intrigue us all.

The update marks a significant milestone in the transition of power from Warren Buffett to Greg Abel. The fact that Abel has been involved in Berkshire’s Japanese investments for several years suggests he is building on the legacy of his predecessor, but also raises questions about how much continuity there will be between the two eras.

Ultimately, the story of Delta and Macy’s is just one thread in the rich history of Berkshire Hathaway’s investment strategy. As we continue to watch this drama unfold, it’s worth remembering that investing at Berkshire is always a game of patience and persistence, where even the smallest moves can have significant long-term implications.