TLDR
- Warren Buffett, not Greg Abel, appears to still be making major stock investment decisions at Berkshire Hathaway
- Berkshire bought $10 billion in Alphabet shares in Q2, a deal Buffett reportedly initiated
- Alphabet is now the third-largest holding in Berkshire’s portfolio, narrowly ahead of Coca-Cola
- Buffett warned in May that investors are in a “gambling mood” and treating markets like a casino
- The S&P 500’s CAPE ratio hit 40.6 in July, the highest since the dot-com crash, historically followed by average losses of 30% over three years
Warren Buffett may have officially handed over the CEO role at Berkshire Hathaway to Greg Abel last December, but new evidence suggests he is still the one picking stocks.
Bloomberg News reported that Berkshire’s $10 billion purchase of Alphabet shares in the second quarter came after a weekend call from Goldman Sachs. Abel gave a quick sign-off, but according to Barron’s, it was Buffett who initiated the investment.
Buffett confirmed in a CNBC interview last month that he had personally “initiated” the Alphabet investment, which first appeared in Berkshire’s portfolio in the third quarter of last year.
Who Is Actually Running the Portfolio?
Barron’s analyst Andrew Bary argues that Abel has no formal portfolio management experience and is not making stock-picking decisions. Abel is focused on running Berkshire’s operating companies and finding new acquisitions.
Abel did deploy capital in one area. He agreed to acquire Taylor Morrison Home for $6.8 billion, though that deal closed after Q2 ended.
The second-largest Q2 purchase, Delta Air Lines, is believed to be the work of portfolio manager Ted Weschler, not Abel.
Berkshire’s Alphabet stake grew by roughly $17 billion in Q2, pushing the stock into third place in the portfolio. As of June 30, Alphabet held a market value of $37.77 billion, ahead of Coca-Cola at $32.51 billion.
Since then, Alphabet has dropped 3.5% while Coca-Cola has gained 12.1%. As of Friday’s close, Alphabet’s lead over Coca-Cola was just $20 million.
Buffett’s Market Warning and the CAPE Ratio
Separately, Buffett issued a broader warning about the stock market in May. He said investors are in a “gambling mood” and that some valuations look “very silly.”
That warning is being backed up by data. The S&P 500’s CAPE ratio, a valuation tool created by Nobel laureate Robert Shiller, hit 40.6 in July. That is the highest reading since the dot-com crash in September 2000.
The S&P 500 has been this expensive only 3% of the time since the index launched in 1957.
Historically, a CAPE reading above 40 has not ended well. The index has never posted a positive three-year return following such a reading. The average three-year return in those cases was negative 30%.
S&P 500 companies are forecast to report 50% earnings growth in Q2, the strongest pace outside of post-recession recoveries. Some analysts argue that strong earnings could allow the index to grow into its valuation.
The CAPE ratio is backward-looking and does not account for future earnings growth. Whether strong AI-driven earnings can keep the market elevated remains to be seen.
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