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You Might Think You're Copying Buffett...
Posted by: Saj Karsan (IP Logged)
Date: November 18, 2009 08:07AM
Recently, Berkshire filed its mandatory disclosures detailing its positions in various securities. As a result, you will undoubtedly see headlines beginning "Buffet Buys X Stock" and "Buffett Sells Y Stock". And when word gets out that Buffett has bought a particular stock, its shares jump immediately. After all, if the Oracle of Omaha wants into a company, surely it has a bright future, right? Unfortunately, determining whether Buffett has actually bought a company is not so easy.
Buffett is not the only portfolio manager at Berkshire. But don't take my word for it, as this statement comes from Buffett himself:
"The media continue to report that "Buffett buys" this or that stock. Statements like these are almost always based on filings Berkshire makes with the SEC and are therefore wrong. As I’ve said before, the stories should say "Berkshire buys."...Even then, it is typically not I who make the buying decisions. Lou Simpson manages about $2½ billion of equities that are held by GEICO, and it is his transactions that Berkshire is usually reporting."
As an example, shares in CarMax rose 7.5% on the day a filing from Berkshire indicated it had taken a position. Presumably investors assumed Buffett had seen something in the valuation that the market hadn't. However, Alex Taylor refutes the fact that KMX was a Buffett purchase in a well-written article here.
So even though you know how to access Berkshire's filings, you may not know the buyer behind the buys. Your best defense is to do your own homework and to know yourself what you're buying.
Re: You Might Think You're Copying...
Posted by: dew_nay (IP Logged)
Date: November 18, 2009 11:04AM
Warren Buffett offers a good education. And surely, what he invests in offers ordinary investors like me an insight into what kind of businesses he looks for and gives a hint if it may be a good buy.
What is important, like you say, is not to blindly copy Mr. Buffett. Firstly, one has to understand the value that he is paying for in a business - to get more in return for what is paid for. There're some businesses that Berkshire invested in that I don't understand like NRG Energy, United Healthcare, though the prices are apparently quite low in price to free cash flow or even earnings. If you can't understand even if it appears cheap, stay out.
Then there're some others that Berkshire invested in that are not that cheap like BNI, UNP, NSC and most recently, Republic Services. Republic Services is priced at over 20 in PE, that does not seems cheap, especially if you compare it to other businesses you can acquire at much lower valuation like JNJ, PG, or even KFT.
But following Mr. Buffett holdings provides not only a good education but also a great opportunity as long as you keep what he does in view, though you do not have to copy his every move as he moves. For example, when AXP, WFC and USB (these stocks were held for years) plunged in prices and bottomed out in early March this year, and if you understand the value and the prices then in relation to the normalized earnings that these businesses will produce, and you had invested, you'd had gotten a great deal at an outrageously cheap valuation - 3 times or less in price to normalized earnings.
Re: You Might Think You're Copying...
Posted by: bernie (IP Logged)
Date: November 25, 2009 03:34PM
Anyone who manages a business, like Buffett or Simpson, invests in a product line-in this case companies and equities, and picks the products on the basis of many consideration, most of which are unknown to us. Given this consideration we cannot really evaluate individual purchases in isolation but must judge by overall results. The relevant time period over which these results accrue will depend on the acumen of the individual evaluator. I believe so many analysts fail to see this is because they have never run a business, or if so then not well.