For almost six decades Berkshire-Hathaway (BRK.A 1.23%) (BRK.B 1.06%) CEO Warren Buffett has impressed Wall Street with his investing skills.

Since he took over as Berkshire’s CEO in the mid-1960s, the aptly named “Oracle of Omaha” has delivered a cumulative return on his company’s Class A shares (BRK.A) of over 5,180,000%, virtually doubling the average annual total return (including dividends) of the benchmark. S&P500. If you consistently outperform the most followed index in the returns column, you will attract an audience.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Buffett’s phenomenal investment returns are what draw about 40,000 people to Berkshire’s annual shareholder meeting in Omaha, Nebraska, each year. They are also what keep investors eagerly awaiting the release of the company’s Form 13F. A 13F is a document filed quarterly with the Securities and Exchange Commission (SEC) that shows investors what stocks Wall Street’s brightest minds have been buying and selling.

But the biggest surprise isn’t always what’s in Berkshire Hathaway’s 13F. Rather, it’s the buying activity for Warren Buffett’s favorite stock that’s missing from any 13F filed with the SEC.

Buffett was a net seller of stocks for seven consecutive quarters

Although Berkshire has not yet filed its second-quarter 13F report (it will be filed with the SEC after the close of trading on August 14), the company’s second-quarter cash flow statement suggests a similar trend that we have observed since early October 2022. Buffett and his key investment advisors Ted Weschler and Todd Combs have been persistent net sellers of stocks.

The estimate of the fair value for Berkshire’s position in Appleat the end of the second quarter, indicates a reduction of Berkshire’s stake in the tech giant by almost 50%. In addition, Buffett and his crew sold shares of Bank of AmericaBerkshire’s second-largest holding by market value, at the time of this writing for 12 consecutive trading sessions (July 17 – August 1).

Overall, Buffett and Co. were net sellers of stocks for seven consecutive quarters, selling around $131.6 billion more in securities than they bought. As a result, Berkshire’s cash holdings grew to a record $277 billion.

To be fair, Buffett and his team made some purchases – it was just very selectively.

For example, 13Fs and Form 4 filings with the SEC show that the Oracle of Omaha has been adding to oil and gas stocks with some regularity. Occidental Petroleum (OXY 4.31%) since the beginning of 2022. Within about 30 months, Berkshire’s brightest investment minds have bought up more than 255.2 million shares of Occidental.

Considering that energy stocks have played little role in Berkshire’s investment portfolio this century, the fact that nearly $15 billion is invested in Occidental Petroleum suggests that Buffett and his team expect the spot price of crude oil to rise, or at least keep it above its historical average.

The biggest catalyst for Occidental Petroleum appears to be tight global crude oil supplies. Roughly three years of reduced capital spending during the COVID-19 pandemic have created a scenario where global energy companies cannot quickly increase production. As long as crude oil supply is constrained, its spot price should see a rebound.

This is especially important for Occidental, which generates an outsized share of its revenue from its upstream drilling segment. Although it is an integrated company that also owns chemical assets, its operating cash flow is highly dependent on fluctuations in the spot price of crude oil.

Image source: Getty Images.

The Oracle of Omaha has bought his favorite stocks worth almost $78 billion

However, the addition of more than 255 million shares of Occidental Petroleum common stock is a drop in the ocean compared to what Warren Buffett has invested in his favorite stock over the past six years.

As I alluded to earlier, not all of Berkshire’s buying and selling activity can be found on a 13F. To find out the details of the Oracle of Omaha’s favorite stocks, you’ll have to look at Berkshire Hathaway’s quarterly earnings. Just before management certifies each of Berkshire’s quarterly reports, you’ll find a detailed page describing share repurchase activity during the quarter. You guessed it… Warren Buffett’s favorite stock is none other than his own company’s!

To be clear, buying back stocks hasn’t always been easy for the Oracle of Omaha or his late, great right-hand man Charlie Munger.

Before mid-July 2018, share buybacks were only permitted if Berkshire Hathaway’s share price fell to or below 120% of its book value in the most recent quarter. At no point in the many years prior to mid-July 2018 did Buffett’s company’s share price fall to or below that threshold, meaning no buybacks occurred.

Everything officially changed on July 17, 2018. That day, Berkshire’s board of directors revised the criteria for share buybacks to give Buffett and Munger the opportunity to come in from the proverbial bench and give it their all.

Under this updated policy, buybacks may begin without an end date or dollar cap as long as:

• The company’s balance sheet shows at least $30 billion in cash, cash equivalents and U.S. Treasury securities.
• Buffett believes that Berkshire stock is fundamentally cheap.

Although the last point is a little subjective, it has not stopped Warren Buffett from selling shares of his company for 24 consecutive Quarter.

During the quarter ended in June, Buffett oversaw the redemption of 555 Class A shares (BRK.A) valued at $345,137,002! In total, this amounts to a repurchase value of nearly $78 billion since the program was modified on July 17, 2018. That’s more than double the amount Buffett and his team spent buying shares of top holding Apple!

BRK.A shares excellent data from YCharts.

Since Berkshire doesn’t pay a dividend, share buybacks are an easy way to reward investors. By continually buying back shares, long-term shareholders’ ownership percentages are gradually increased. You could say it’s the perfect tool to instill in investors the long-term mindset that Buffett and Charlie Munger valued so much.

In addition, share buybacks and reducing the number of shares outstanding can boost earnings per share (EPS) for companies with stable or increasing net income (excluding unrealized investment gains/losses). This should help make Berkshire even more attractive on a fundamental basis.

With $277 billion in cash on hand and little value to interest Warren Buffett, it’s almost certain that the (re)purchase of Buffett’s favorite stocks will continue.