Buffett May Not Have Sold Johnson & Johnson

In its recent end-of-quarter filing, Berkshire Hathaway reduced its stake in Johnson & Johnson by 54%. As is often the case, the media automatically assumed that Buffett turned sour on Johnson & Johnson and was dumping the stock. Before you run off and sell 50% of your JNJ stake because Buffett is allegedly dumping his year-and-a-half old investment in the company, let's look at the sale logically.

I'm going to quickly run through the latest filing so that you can ignore the noise going forward. First, let's look at the "reporting entities" in the filing. For Berkshire, there are 21 reporting entities on this filing which means that holdings listed on the 13F-HR include decisions made by...and not made by...Warren Buffett.

If you actually look at the filing, you'll see the list of entities reporting in this filing. Buffett. Blue Chip Stamps. GEICO. Wesco. And a number of other entities, some of which have their own investment managers, portfolios, and decisions.

Later in the filing, where the positions are reported, Column 7 itemizes the "Other Managers" — the entities or people that were involved in making the decision to hold those securities. As Chairman of Berkshire, Buffett is listed on every position. Beyond that, the positions are reported in groups based on who made decisions and/or holds the position.

When Buffett Moves Money, He Moves Money

Rather than immediately assuming that Warren Buffett is shedding his Johnson & Johnson position, let's see the changes to the portfolio based on the "Other Managers" and entities that hold the stock:

What we see here is that National Indemnity, OBH Inc, BH Columbia, and Columbia Insurance reduced their stakes in Johnson & Johnson. Other entities directly controlled by Buffett and Munger — for example, Berkshire Hathaway itself and Wesco Financial and subsidiaries — did not sell a single share of JNJ.

When Buffett is buying or selling stock, he typically does so in bits and pieces through various entities in an attempt to mask his purchases and sales for a while. In this case, large sales were made by a few insurance subsidiaries rather than a "sneaking in or out" move.

Did Buffett Sell Johnson & Johnson?

Maybe. Maybe not. Time will tell as we won't see another 13F-HR for three months. Still, I think it's premature to say that Buffett is dumping Johnson & Johnson based solely on the amount of shares controlled, directly and indirectly, by Berkshire Hathaway, especially when some of the entities he directly controls with little or no outside influence did not sell a single share in the last quarter.

Regardless of what Buffett did or didn't do, buying or selling JNJ based on his 13F-HR or the noise in the media is a poor investment strategy. If you want to do that, buy Berkshire Hathaway stock and put it on the shelf.

Comments

[Midas1]

JNJ is a solid company. I believe Buffett is still invested in the company and would be surprised to learn of him dumping a great stock.

2009 Feb 19 09:20 AM

[tinman]

Or maybe he's buying up JNJ debt using proceeds from the stock.

2009 Feb 19 09:58 AM

[captainccs]

Very good observation! 75% of the JNJ holding was at two insurance entities and they have been known to need cash to pay claims. It does not necessarily speak badly about the stock since the sale might not have been entirely voluntary but part of the business of running an insurance company.

2009 Feb 19 10:48 AM

[Nathaniel C]

I think the real reason Buffett is reducing his stakes in J&J and Procter is so that he can deploy that capital in better opportunities like corporate debt. Buffett got around 15% on his purchase of Harley Davidson bonds. Rates like that are superior to owing stocks right now.

2009 Feb 19 06:23 PM

[ArtfulDodger]

Joe Ponzio:

Your points make it clear why it's almost impossible to successfully follow someone you're not talking to or who is not writing an article informing you exactly what they're doing.

And Buffett has no intention of telling us what he's doing when he still holds a position in a stock.

2009 Feb 20 03:42 AM

[mangiamillie]

It's fine to notice what the big dogs are doing but foolish to imitate Buffett as if you can piggy back on his success. That's turning the market into a religion and Buffett into a god.

2009 Feb 20 07:56 AM

[ScroogeMcduck]

How come nither e*trade or yahoo finace reported anything about buffet selling JNJ stock? Is his position not big enough? if not how big does his position have to be where he has to annouce his selling or purchaseing? I dont get someone please explain

2009 Feb 20 10:07 AM

[auto44]

He did announce that is the function of the 13-FR sometimes Buffet get permission to hide his changes to prevent a run in either direction. It has been granted in the past, I don't know if it will be any more.


On Feb 20 10:07 AM ScroogeMcduck wrote:

> How come nither e*trade or yahoo finace reported anything about buffet
> selling JNJ stock? Is his position not big enough? if not how big
> does his position have to be where he has to annouce his selling
> or purchaseing? I dont get someone please explain

2009 Feb 20 11:56 AM

[Did U Think The Ponzi Schem...]

Folks, why does everyone overlook the obvious? Buffett is getting killed in many stocks and so he needs to sell the ones that haven't gotten killed yet in order to keep his capital reserves where he needs them to be. Who knows what he is doing - could be playing with margin and getting a margin call. Sound ridiculous? Well, he is the one who said derivitives were weapons of financial mass destruction and then bought a boat load of derivitives.

Something is rotten in casa Buffett and it ain't the cheese.

2009 Feb 20 09:50 PM