Berkshire Hathaway’s big mystery stock wager could be revealed soon

Berkshire
Hathaway,
led
by
legendary
investor

Warren
Buffett,
has
been
making
a

confidential
wager
on
the
financial
industry
since
the
third
quarter
of
last
year.

The
identity
of
the
stock
—
or
stocks
—
that
Berkshire
has
been
snapping
up
could
be
revealed
Saturday
at
the
company’s
annual
shareholder

meeting
in
Omaha,
Nebraska.

That’s
because
unless
Berkshire
has
been
granted

confidential
treatment
on
the
investment
for
a
third
quarter
in
a
row,
the
stake
will
be
disclosed
in
filings
later
this
month.
So
the
93-year-old
Berkshire
CEO
may
decide
to
explain
his
rationale
to
the
thousands
of
investors
flocking
to
the
gathering.

The
bet,
shrouded
in
mystery,
has
captivated
Berkshire
investors
since
it
first

appeared
in
disclosures
late
last
year.
At
a
time
when
Buffett
has
been
a
net
seller
of
stocks
and
lamented
a
dearth
of
opportunities
capable
of
“truly
moving

the
needle
at
Berkshire,”
he
has
apparently
found
something
he
likes
—
and
in
the
financial
realm
no
less.

That’s
an
area
he
has

dialed
back
on
in
recent
years
over
concerns
about
rising
loan
defaults.
High
interest
rates
have
taken
a
toll
on
some
financial
players
like
regional
U.S.
banks,
while
making
the
yield
on
Berkshire’s
cash
pile
in
instruments
like
T-bills
suddenly
attractive.

“When
you
are
the
GOAT
of
investing,
people
are
interested
in
what
you
think
is
good,”
said
Glenview
Trust
Co.
Chief
Investment
Officer

Bill
Stone,
using
an
acronym
for
greatest
of
all
time.
“What
makes
it
even
more
exciting
is
that
banks
are
in
his
circle
of
competence.”

Under
Buffett,
Berkshire
has

trounced
the
S&P
500
over
nearly
six
decades
with
a
19.8%
compounded
annual
gain,
compared
with
the
10.2%
yearly
rise
of
the
index.

Berkshire
requested
anonymity
for
the
trades
because
if
the
stock
was
known
before
the
conglomerate
finished
building
its
position,
others
would
plow
into
the
stock
as
well,
driving
up
the
price,
according
to

David
Kass,
a
finance
professor
at
the
University
of
Maryland.

Buffett
is
said
to
control
roughly
90%
of
Berkshire’s
massive
stock
portfolio,
leaving
his
deputies
Todd
Combs
and
Ted
Weschler
the
rest,
Kass
said.

While
investment
disclosures
give
no
clue
as
to
what
the
stock
could
be,
Stone,
Kass
and
other
Buffett
watchers
believe
it
is
a
multibillion-dollar
wager
on
a
financial
name.

That’s
because
the
cost
basis
of
banks,
insurers
and
finance
stocks
owned
by
the
company
jumped
by
$3.59
billion
in
the
second
half
of
last
year,
the
only
category
to
increase,
according
to
separate
Berkshire

filings.

At
the
same
time,
Berkshire
exited
financial
names
by
dumping
insurers


Markel
and


Globe
Life,
leading
investors
to
estimate
that
the
wager
could
be
as
large
as
$4
billion
or
$5
billion
through
the
end
of
2023.
It’s
unknown
whether
that
bet
was
on
one
company
or
spread
over
multiple
firms
in
an
industry.

If
it
were
a
classic
Buffett
bet
—
a
big
stake
in
a
single
company
—
 that
stock
would
have
to
be
a
large
one,
with
perhaps
a
$100
billion
market
capitalization.
Holdings
of
at
least
5%
in
publicly
traded
American
companies
trigger

disclosure
requirements.

Investors
have
been
speculating
for
months
about
what
the
stock
could
be.
Finance
covers
all
manner
of
companies,
from
retail
lenders
to
Wall
Street
brokers,
payments
companies
and
various
sectors
of
insurance.

Charles
Schwab
or


Morgan
Stanley
could
fit
the
bill,
according
to

James
Shanahan,
an
Edward
Jones
analyst
who
covers
banks
and
Berkshire
Hathaway.

“Schwab
was
beaten
down
during
the
regional
banking
crisis
last
year,
they
had
an
issue
where
retail
investors
were
trading
out
of
cash
into
higher-yielding
investments,”
Shanahan
said.
“Nobody
wanted
to
own
that
name
last
year,
so
Buffett
could’ve
bought
as
much
as
he
wanted.”

Other
names
that
have
been
circulated
—


JPMorgan
Chase
or


BlackRock,
for
example,
are
possible,
but
may
make
less
sense
given
valuations
or
business
mix.


Truist
and
other
higher-quality
regional
banks
might
also
fit
Buffett’s
parameters,
as
well
as
insurer


AIG,
Shanahan
said,
though
their
market
capitalizations
are
smaller.

Berkshire
has
owned
financial
names

for
decades,
and
Buffett
has
stepped
in
to
inject
capital
—
and
confidence
—
into
the
industry
on
multiple
occasions.

Buffett
served
as
CEO
of
a
scandal-stricken
Salomon
Brothers
in
the
early
1990s
to
help
turn
the
company
around.
He
pumped
$5
billion
into Goldman
Sachs in
2008
and
another
$5
billion
into Bank
of
America in
2011,
ultimately
becoming
the
latter’s
largest
shareholder.

But
after
loading
up
on
lenders
in
2018,
from
universal
banks
like
JPMorgan
to
regional
lenders
like


PNC
Financial
and


U.S.
Bank,
he
deeply
pared
his
exposure
to
the
sector
in
2020
on
concerns
that
the
coronavirus
pandemic
would
punish
the
industry.

Since
then,
he
and
his
deputies
have
mostly
avoided
adding
to
his
finance
stakes,
besides
modest
positions
in


Citigroup
and


Capital
One.

Last
May,
Buffett
told
shareholders
to
expect
more

turbulence
in
banking.
He
said
Berkshire
could
deploy
more
capital
in
the
industry,
if
needed.

“The
situation
in
banking
is
very
similar
to
what
it’s
always
been
in
banking,
which
is
that
fear
is
contagious,”
Buffett
said.
“Historically,
sometimes
the
fear
was
justified,
sometimes
it
wasn’t.”

Wherever
he
placed
his
bet,
the
move
will
be
seen
as
a
boost
to
the
company,
perhaps
even
the
sector,
given
Buffett’s
track
record
of
identifying
value.

It’s
unclear
how
long
regulators
will
allow
Berkshire
to
shield
its
moves.

“I’m
hopeful
he’ll
reveal
the
name
and
talk
about
the
strategy
behind
it,”
Shanahan
said.
“The
SEC’s
patience
can
wear
out,
at
some
point
it’ll
look
like
Berkshire’s
getting
favorable
treatment.”

—
CNBC’s
Yun
Li
contributed
to
this
report.