Buffett Bet on Stocks Before Rout by Spending Most Since 2008

Discussion in 'Trading' started by SteveNYC, Aug 8, 2011.

  1. Aug. 8 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc., whose top three shareholdings declined by about $1.6 billion last week, disclosed its biggest quarterly purchase of equities in almost three years.
    Berkshire bought $3.62 billion of stock in the three months ended June 30, the most since it spent $3.94 billion in the third quarter of 2008, the Omaha, Nebraska-based company said late Aug. 5 in a filing. Equity purchases exceeded acquisitions of fixed-maturity securities for the first time since 2009.

    Berkshire Hathaway Inc. Chairman and CEO Warren Buffett

    Buffett, 80, turned his focus to stocks as Berkshire’s cash swelled and interest rates remained near record lows. The firm’s equity portfolio, which rose to $67.6 billion as of June 30, suffered last week as markets plummeted. Stocks around the world fell amid signs the U.S. economy was stalling and speculation that Europe will fail to contain its sovereign-debt crisis.
    “He’s gotta put the cash to work somewhere,” said Tom Lewandowski, an analyst with Edward Jones & Co. “We’ve seen the market pull back, and this is the environment he likes to make investments in.”
    Transatlantic Holdings Inc. said yesterday that Berkshire offered about $3.25 billion in a bid to break up the New York- based reinsurer’s deal to merge with Allied World Assurance Company Holdings AG. The equity market rout helped push down the value of Allied’s all-stock bid by about 13 percent from the last trading day before the June announcement through Aug. 5.
    Stock Plunge
    U.S. and European stocks posted the biggest weekly declines since November 2008. The Standard & Poor’s 500 Index fell 7.2 percent, erasing its gains for the year, while the Stoxx 600 Europe Index tumbled 9.9 percent to its lowest in 13 months. The U.S. government was stripped of its AAA credit rating by S&P on Aug. 5 after the close of New York trading.
    Buffett, Berkshire’s chairman and chief executive officer, reported a 74 percent jump in second-quarter profit in the filing. Cash holdings climbed 16 percent in three months to $47.9 billion at the end of June as Goldman Sachs Group Inc. repaid Buffett’s 2008 investment. Net income of $3.42 billion was boosted by derivative returns and earnings from the company’s manufacturing and retailing units.
    Buffett said Aug. 6 that while the market slump may hurt confidence, the U.S. will probably avoid a recession.
    “Financial markets create their own dynamics, but I don’t think we’re facing a double-dip recession,” Buffett told Bloomberg Television’s Betty Liu. “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”
    Economic Slump
    Two-year Treasury yields fell to a record low on Aug. 4 as reports on manufacturing and consumer spending trailed economists’ forecasts. The European Central Bank has signaled it is ready to start buying Italian and Spanish securities to counter the sovereign debt crisis. Buffett said S&P made a mistake and the U.S. deserved a “quadruple A” rating.
    Berkshire sold $200 million of equities in the three months ended in June, the second-smallest quarterly total in more than three years. The company spent $2.78 billion on fixed-maturity securities.
    Buffett built Berkshire over four decades by acquiring businesses including car insurer Geico Corp. and betting on stocks like Coca-Cola Co. After debt markets froze in 2008, Buffett used more than $10 billion of Berkshire’s cash to finance New York-based Goldman Sachs, General Electric Co. and Swiss Reinsurance Co. In 2010, he spent $26.5 billion on the takeover of railroad Burlington Northern Santa Fe.
    ‘Recovery Bet’
    Berkshire increased its stockholdings this year in firms it labeled “commercial, industrial and other.” That portfolio was $10.7 billion on June 30 on a cost basis, compared with $6.5 billion on Dec. 31. The “consumer products” portfolio was down 2.4 percent by that measure while holdings of “banks, insurance and finance” were up less than 1 percent.
    “That is basically a recovery bet,” Glenn Tongue, a partner at Berkshire shareholder T2 Partners LLC, said of the increase in the commercial and industrial portfolio. “Equities are available today at prices where he’s almost certain to generate an adequate rate of return.”
    Coca-Cola, Berkshire’s biggest shareholding, fell 1.8 percent last week, wiping $248 million from the market value of Buffett’s stake. Wells Fargo & Co., the No. 2 holding, dropped 9.8 percent, lowering Berkshire’s holding by $935 million. The stake in American Express Co., Berkshire’s third-largest stockholding, fell by $429 million as the credit-card company’s shares slipped 5.7 percent.
    Buffett is overseeing changes to the stock portfolio after hiring former hedge-fund manager Todd Combs last year to help with investments. Berkshire bought MasterCard Inc. shares in the first quarter, the only publicly disclosed addition to Berkshire’s U.S. equity holdings. The company hasn’t filed its second-quarter list of holdings yet.
    Berkshire agreed in March to buy Lubrizol Corp., the Wickliffe, Ohio-based maker of engine additives, for about $9 billion in cash. Buffett’s firm, which doesn’t pay a dividend, uses earnings and premiums from insurance units to fund investments and acquisitions.

    One thing I noticed about Warren Buffett is his keen foresight. Somehow he is able to see a trend year/years before "the experts" and mortals like us and then bet or not bet big.

    NASDAQ was rocketing up to 5,000 and Buffett totally avoided tech. stocks. He was somewhat ridiculed for missing the boat and even questioned whether he lost his touch. Fast forward 2 years, and NASDAQ spectacularly crashed to 1,100 from 5,000.

    He then bet big on silver in 2002 and said it was a long term investment. Well, silver has done pretty well since 2002.

    He called the derivatives something akin to finanicial weapons of mass destruction like 2 years before the 2008-09 crash. I had no clue what he exactly meant until the spectacular 2008-09 crash.

    He bet on transports like railroad stocks before they took off.

    He has a macro long term view and is in early. Not sure when he exits though.

    He seems to also have an immediate impact on whatever he invests in. e.g. When there is a breaking news that Buffett has made a large investment in stock XYZ at 12:00 PM on a Monday, the stock XYZ will go up immediately and most likely until 4 PM.

    I am surprised with his latest equities recovery investment because of gloom and doom out there right now.

    That said, I don't listen to what Buffett says and don't follow his investments. I never have. But maybe I should start paying attention to Buffett.
  2. into pocus

  3. Butterball


    Which is extremely puzzling because he apparently shorted something like $5bln worth of naked equity index puts right at the top.

  4. I remember something like this. What ever happened to those puts?

    When did he close this position and how much did he gain/lose?

  5. So he tells us in 2007 that he exited his entire silver position in 2006.

    From the article:

    "Beginning in 1997, the Oracle of Omaha saw the value of silver glinting in the dust of depressed prices. From 1997 until 2006, his investment fund-Berkshire Hathaway-accumulated over 37% of the world’s known silver supply-even more than the COMEX! During that time, he was not only an oracle but also the all-time silver bull.

    Buffett’s silver buying spree caught almost everyone off guard. After all, the man made his billions by buying and holding undervalued stocks. Once again, Buffett was ahead of the pack when he saw the imbalance in silver supply and demand and the potential reflected in low prices.

    When Buffett started buying silver, it was just under $6 an ounce (silver now trades at over $13). It wasn’t until 2006 that Berkshire made its move to cash in on its hefty investment in silver; however, that move is still considered controversial.

    Buffett to the rescue? In 2006, the first Silver Exchange Traded Fund (SLV) owned by Barclays was trying to get approval from the SEC by promising that it would hold silver to back up its shares.

    At that time, the newly proposed fund could only take delivery on a portion of the needed amount of silver because of tight supplies and Barclays was rumored to have borrowed or purchased over 130 million ounces of silver-about the total amount held by Berkshire Hathaway at the time.

    As Berkshire Hathaway stored its silver in London where there are no reporting requirements, the transaction has yet to be substantiated.

    So about the same time that the new fund (SLV) was looking for physical deliveries of silver, Berkshire Hathaway sold out its entire stock. Buffett said he sold at about $ 7.50.

    Subsequently, the new fund (SLV) was approved and went active on the American stock exchange on August 28, 2006.

    But the genius of Buffett was called into questions as it appeared that he sold way too early; the price of silver has more than doubled from Buffett’s average purchase price of around $6 per ounce. Many-including Buffett himself- felt he sold out too soon.

    At the 2006 Berkshire Hathaway annual meeting, Mr. Buffett was asked about the fund’s silver holdings and Buffett responded:

    “We had a lot of silver once, but we don’t have it now—and we didn’t make much on our prior holdings.” He went on to say: “I bought [silver] early and sold early. Silver was my fault. [Speculation] is wildest at the end.”

    But none of the Berkshire Hathaway shareholders seemed to begrudge the Oracle of Omaha the estimated $500 million in potential profits it cost to help bail out Barclays new fund."

    So did Buffett sell his entire silver position to help set up Barclays silver fund?
  6. AK100


    The 'Buffett Buys' stories are always bought out when the market dumps.

    Other market interests, probably the fund managers, are no doubt responsible.
  7. Visaria


    Berkshire bought $3.62 billion of stock in the three months ended June 30, the most since it spent $3.94 billion in the third quarter of 2008, the Omaha, Nebraska-based company said late Aug. 5 in a filing. Equity purchases exceeded acquisitions of fixed-maturity securities for the first time since 2009.

    He bought all this before June 30th. No idea if he bought last week.
  8. senile
  9. the dude bought at the top and everybody thinks he is a genius. reading the snippet posted here i see that he bought in 2008 PRIOR TO the crash. is he early again by 9 months?
    #10     Aug 8, 2011