2 Critical Things to Remember When You See What Warren Buffett Buys and Sells
Feb 23rd 2014 11:00AM
Updated Feb 23rd 2014 11:02AM
A month and a half after each quarter ends, every major investor has to reveal what stocks they bought and sold. While there are always things to learn and surprises to be had, investors must always keep two things in mind when reviewing what is revealed.
Don't always focus on the percent
Since the latest filing of Berkshire Hathaway revealed what stocks Warren Buffett has been buying and selling, many have been taken by the massive increase in his position of General Electric In fact, Buffett increased the holding by almost 17 times, adding almost 10 million shares, which is seemingly a staggering vote of confidence in favor of the company.
However a look at the percentage increase can be distinctly misleading and present a broad misunderstanding of what companies Buffett and his lieutenants were actually most active in buying and selling during the quarter. As you can see in the chart below, while the additional shares of GE were by far the largest percentage gain, on a raw dollar basis, it was actually only fourth largest:
Source: Company SEC Filings.
In no way should this discount the significance of the additional purchase of GE, as a $280 million investment is not something to be shrugged off. But it ultimately reveals that while the percentage gains were smaller, it turns out the addition to the positions of DaVita Healthcare Partners and USG Corp were actually worth more.
First glance can be deceiving
It is also rather easy to ask why the additions of USG and DaVita are noteworthy, but the $2.2 billion addition of Goldman Sachs is not. In fact, that is a rather understandable question when you consider Berkshire Hathaway only made approximately $1.5 billion of purchases outside of the acclaimed investment bank, meaning the Goldman addition was worth roughly 1.5 times more than the other eight companies combined.
However, it's also vitally important to remember the position in Goldman is actually not a new purchase at all, but instead a conversion of his profit from his existing investment in Goldman Sachs preferred shares as well as warrants to buy $5 billion more, which was made during the financial crisis in 2008.
The news Buffett would be taking his profit on that deal in the form of the common stock of Goldman Sachs was first revealed more than four and a half months ago at the end of September. This is not to discount the position Berkshire Hathaway now has, as it's certainly notable that Buffett took his profit in common stock and not in cash; however, it is hard to classify the addition of Goldman Sachs and Buffett's affinity toward the company as being breaking news.
There is always much to learn from when Warren Buffett makes decisions to buy and sell the companies Berkshire Hathaway owns the common stock of, but it is critical to see that a simple glance at the holdings does not always paint the entire picture.
The filings will tell us what Buffett bought and sold, but we also want to know why did it. And the reality is, Warren Buffett has made billions through his investing and thankfully, he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.
The article 2 Critical Things to Remember When You See What Warren Buffett Buys and Sells originally appeared on Fool.com.Patrick Morris owns shares of Berkshire Hathaway and General Electric Company. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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