Did New Berkshire Hathaway CEO Greg Abel Repeat Past Warren Buffett Mistakes?

The quarterly filing of Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) Form 13F, revealing what moves the conglomerate made within its stock portfolio, is always a highly anticipated event for investors. Former CEO Warren Buffett is a legendary investor, so people no doubt wanted to see what moves Greg Abel made in his first quarter as chief executive.

If I were an owner of Berkshire stock, though, I would be highly disappointed with Abel's actions. First, it appears Abel just dumped all of former Berkshire fund manager Todd Combs' picks, including some highly attractive businesses like Amazon, Visa, and Mastercard. Combs was one of two portfolio managers, along with Ted Weschler, that Buffett had hired to work with him, and he later took on the additional role of CEO of GEICO, one of Berkshire's most important insurance subsidiaries. After getting passed over to head Berkshire, he left in early December to lead JPMorgan Chase's $10 billion Strategic Investment Group.

During the quarter, Berkshire fully exited 15 positions and almost all of its Constellation Brands stake. Along with newly added stocks, Berkshire went from owning 39 stocks at the end of last year to just 26 at the end of Q1.

Is Berkshire repeating past mistakes?

However, more concerning were the stocks Abel did add, as he bought shares in companies in two industries that Buffett has admitted were mistakes for him to get involved in.

Abel's largest new position was in Delta Air Lines (NYSE: DAL), where he took a $2.6 billion stake, purchasing over 6% of the airline's stock. Buffett is well-known for his dislike of airlines' economics -- he once called their need for capital a "bottomless pit" -- and his regret over past investments. In 1989, Berkshire invested in the preferred stock of US Airways, with Buffett later calling the investment an "unforced error." While he managed to squeeze out a small gain when he exited in 1998, he called it a "terrible mistake," while noting he was lucky to dodge the airline eventually going bankrupt. Buffett took a second dip into the airline sector in 2016, with a basket of investments in four airlines, this time taking a loss in 2020 as the COVID-19 pandemic severely reduced air travel.

The allure of airlines is generally straightforward. Investors typically see the industry gaining pricing power as capacity rationalizes. This could be from consolidation or bankruptcy, as in the case of Spirit Airlines. The airlines also have very attractive credit card businesses. However, this is still a very capital-intensive and economically sensitive industry, and things seem to go wrong if you hold these stocks long enough.

In addition to Delta, Abel also took a $55 million stake in department store operator Macy's (NYSE: M). Buffett has noted that retailing is a tough business with little moat, where management needs to stay smart. This is the first department store investment by Berkshire since 1966. However, based on comments to CNBC in March about a tiny purchase he liked, this seems like an investment Buffett could be behind, and he and Abel were likely lured in by the value of Macy's real estate portfolio, highlighted by its highly valuable New York City flagship store. That said, Macy's trading well below the value of its real estate portfolio has been an investment thesis for a very long time, and it hasn't exactly helped the stock over the past decade, when it has lost nearly 40% at recent prices.

Image source: The Motley Fool.

Also of note, Abel did significantly add to Berkshire's Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) position, which I like, since in my view it is the best-positioned company with artificial intelligence (AI) over the long term, given that it is the only player with both its own world-class AI model and chips. However, he also tripled his stake in newspaper owner The New York Times (NYSE: NYT), after starting a position in Q4. The company has been doing well, but at a forward P/E of nearly 27 at recent prices, the valuation doesn't seem that attractive.

While Abel should be given some time to see how Berkshire's portfolio performs under his leadership, I personally am not a fan of most of his early moves, outside of Alphabet. The good news is that Alphabet was his largest move by far, with him buying about $10 billion more worth of shares than the Delta buy, which was his second-largest purchase.

JPMorgan Chase is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, JPMorgan Chase, Mastercard, The New York Times Co., and Visa. The Motley Fool recommends Constellation Brands and Delta Air Lines. The Motley Fool has a disclosure policy.