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Buffett takes stake in Mastercard

May 16, 2011 | About:
crafool

crafool

6 followers
It looks like Buffett or one of his other portfolio managers (i.e. Todd Combs) took a small stake in Mastercard according to Berkshire's newest filing. Buffett also asked the SEC to allow him to postpone filing some other purchase(s) which he does frequently. I like to speculate and wonder what company Buffett would like to own next. After committing to the Lubrizoil acquisition his so-called "Elephant Gun" ($30 to 40 Billion target) is reduced to a "Zebra Gun" ($10 to $20 Billion target). Buffett's approach to stock investing is to act as if he was buying the whole company. He learned this approach from his mentor, Ben Graham. He often says that he would love to own all of any of the companies in his stock portfolio. Unfortunately most have market caps larger than his current "gun" would allow him to take down. Kraft was close but escaped with the Cadbury purchase that took its market cap out of the buyout range. Buffett loves food companies with strong brands. Strong consumer brand loyalty and what he calls "mind share". Additionally, Buffett thinks we may have inflation on the horizon and these are generally/historically good inflation hedges.

So, no Kraft and this after missing out on Anheuser Busch to InBev. I was just thinking that maybe he might be interested in a smaller Kraft so too speak, but a company with great brands like Campbell Soup. Great company and a market cap that he could more than digest. Share price had been underperforming until just lately as investors worry about Campbells ability to pass on higher input costs to consumers and possible competition from store brands. Of course management of CPB have been exercising options and selling the shares in the stock. Thus, they think it must be over valued and would be hard pressed to argue any buyout was too cheap. Management always seems to buy and sell at the wrong time. I think that is a mistake and Buffett might as well. Buffett likes to say that your best inflation hedge is being the best at what you make or serve. Campbells is a leader in its segment. I think it fits well within his target view. Of course, I would say that Kelloggs does as well for that matter. I think Buffett will continue to focus on food companies.

Just a thought any comments greatly appreciated. Happy investing to all!!!

Rating: 2.7/5 (13 votes)

Comments

rgosalia
Rgosalia - 3 years ago
I wrote an extensive report on MasterCard in late Dec.

The primary reason that MasterCard got cheap is because of a particular amendment made to the Dodd Frank Act to regulate the interchange fees for debit transactions (called the Durbin Amendment). Mr. Market reacted to this regulation in its usual overly depressive manner offering a great opportunity to own a phenomenal wealth compounding machine at a ridiculous price.

You can read more about MA here.
mcwillia
Mcwillia - 3 years ago
Agree absolutely. MA is indeed a "wealth compounding machine". On my shortlist of other possible Buffett targets are:

1) CPB

2) K

3) AFL

4)CL

5)MDT

MDT is a stretch now, but the others all appear to be suitable big game.
ElmerJFudd
ElmerJFudd - 3 years ago
Where is the byline? I can't see who wrote this.

Whoever you are, you seem to assume that Buffett is purchasing an entire company. It's entirely possible that he's just taking a stake in a public company. In that case, your size limit is pointless, since he could be purchasing a company of any size.
crafool
Crafool - 3 years ago
ElmerJFudd,

Buffett is pretty clear about his stock holdings. He would love to own 100% of any of them. Buffett follows the rule taught to him by Benjamin Graham which is basically as follows: "Treat all stock purchases as if you are purchasing the whole company". Buffett has a similar saying to describe this that he uses as follows: "I am a better businessman because I am an investor, and I am a better an investor because I am a businessman". Buffett has turned individual stock holdings into gradual buyouts for years. GEICO and Burlington Northern are pretty good examples of this practice. Berkshire held GEICO and Burlington as an individual stocks and slowly acquired more and more of them through direct stock purchases and the companies' own share buy backs ("playing the shrink").

Buffett's desire to continue to grow BRK means the size limit is always pertainent, and would only in my opinion become less so once BRK began paying a dividend.

Happy investing to all!!! Crafool
ElmerJFudd
ElmerJFudd - 3 years ago
Many of his individual stock holdings have become what you call "gradual buyouts", many others have not.

Berkshire will never purchase all of Coke - not in any of our lifetime's, anyway. Ditto Wells Fargo, Washington Post, Procter and Gamble, J&J and more. Some of those are fairly recent purchases. Rest assured that if he finds a good company selling at a good (or better) price, he will take a large position in it, even if it is not 100% of the company.

If you really want to try to anticipate what he is hiding on the 13F - which, like resistance, is probably futile - you are better off considering his maxim that you should look for good companies where something has gone temporarily wrong. In that vein, you should consider industries which have been hit hard but are likely to come back - financial firms, health care, maybe others - and then look for companies with high ROE and low debt - the conditions he sets out every year in his annual letter.

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