Buffett's Recent Portfolio Changes: What's the Message?

If you follow Mr. Buffett (BRK.A) then you already know that he made some significant portfolio changes in his recent SEC filings. Now, I do not recommend following him since he has billions and ‘he’ can afford to hold stocks forever because it is in his corporate account, which means he really isn’t risking his own money. However, his recent moves are very telling, in my opinion.

He sold Carmax (KMX), Home Depot (HD), ConocoPhillips (COP), Eaton (ETN) and also health care stocks. First and foremost it tells me that he expects health care reform (which is not really reform so much as a public option) to pass; otherwise he would not have sold those health insurers. He sees through the whole cash for clunkers nonsense as it is not a long-term solution for auto sales and it also makes a statement that he feels the consumer is not coming back anytime soon.

His reduction of Home Depot is another vote for the consumer to not return in the near-term and that housing will more than likely stay stagnant for a while. By selling COP he was simply undoing a bad decision for which he took a lot of criticism to begin with. However, if you want to read into it further, I think this means he thinks the energy trade is dead at the moment and prices are going to be flat for sometime into the future which is good news for consumers as fuel costs should remain ‘low’ in the near-term.

His addition of Becton Dickerson (BDX) and Johnson & Johnson (JNJ) indicates two things to me. First, it means that he thinks BDX will benefit from the public option or, in the event it does not pass, that while health insurers are dangerous to own, health care stocks are not, which he is right on about. Second, JNJ is a good company that is well diversified and a defensive play, which, again, is right on for this market.

In short, I see this report as bearish, as he did far more selling than buying and his buys were defensive stocks. He is buying classic defensive stocks and stocks that would clearly benefit if the healthcare reform actually passes. While I do not mimic his moves, and have no positions in any of those holdings, I think he made some pretty good calls.

Of course my opinion really doesn’t matter, however I did find the moves of interest to how he may view the markets at this time. It looks like he is getting much more conservative even if the media is telling you to jump in with both feet in this ‘new bull market’ which really does not exist.

Based on these moves, whether you think I am too bearish or not, I would suggest you invest defensively, as it is not just me who believes this market is more dangerous than rewarding.

Comments

[buoy:]

Good anaylsis...actions show louder than words.

Aug 16 12:51 PM

[Michigan Fan:]

If Warren Buffett was betting on the public option, he probably made a mistake. My prediction is that health care reform will pass but that the public option will be eliminated in order to garner enough Congressional support..

Aug 16 02:59 PM

[Jimbo:]

Long on Oil: Sadly it seems to me that Presidential, and MANY OTHER, elections seem to boil down to picking the lesser of evils. I was never happy with George Bush but look at the options: "global warming" Gore, and John,"I voted for it before I voted against it" Kerry. I wasn't happy with McCain but I fear the current crew in Washington will fly the economy, and the currency into the ground. Oy Vey!!

Aug 16 05:30 PM

[hide your b...:]

i have no respect for buffett. he tells americans to buy american, while he invests in chinese batteries.

Aug 16 06:01 PM

[qwktrder:]

You are 100% correct. He should just retire.He really hasn't made any substantal gains on anything he has bought lately.


On Aug 16 08:11 AM fwi wrote:

> I just hope that he returns to full time investing and stops cheerleading
> for Obama. Wall Street has become Washington, and Washington is trying
> to run Wall Street. Both need to get back to what they know. I think
> that Buffett's moves signify his negative view of the Democrat's
> handling of the economy.

Aug 16 09:02 PM

[whidbey:]

I hope he does tone down the cheer leading.

I am a holder of BRK and we would welcome some attention to share values. As for his legendary investor status, it is not obvious. He bleeds like the rest of us and his passions are still dangerous, but may less so than the alternatives.

I am still a patron of the Fed with an 80% position I hold in dollars. I know, see the shrink again. I will but tell me my alternatives.

Aug 16 09:09 PM

[realold:]

Good insight. I had not thought of it when reading the article and it makes a lot of sense. I give you the advantage over Ray, though his insights were interesting, as well.


On Aug 16 08:11 AM fwi wrote:

> I just hope that he returns to full time investing and stops cheerleading
> for Obama. Wall Street has become Washington, and Washington is trying
> to run Wall Street. Both need to get back to what they know. I think
> that Buffett's moves signify his negative view of the Democrat's
> handling of the economy.

Aug 16 10:52 PM

[realold:]

I agree, but we must try to stop them and not just accept the craziness. It is the Congress that really does things (unfortunately). Vote them out.


On Aug 16 05:30 PM Jimbo wrote:

> Long on Oil: Sadly it seems to me that Presidential, and MANY OTHER,
> elections seem to boil down to picking the lesser of evils. I was
> never happy with George Bush but look at the options: "global warming"
> Gore, and John,"I voted for it before I voted against it" Kerry.
> I wasn't happy with McCain but I fear the current crew in Washington
> will fly the economy, and the currency into the ground. Oy Vey!!

Aug 16 10:56 PM

[realold:]

Boy are you living in a dream world. This move is not about health care, it is about control of votes and dollars, yours. Public option will become public mandate and your doctor will be run by the equivalent of the post office. Private insurance cannot possibly compete with taxpayer subsidized and mandated life control. It will be gone. Think of public option as your HMO being run by the DMV. Wake up.


On Aug 111:48 AM TonyCinTX wrote:

> A public option isn't reform? It certainly has the potential to massively
> reform the health insurance industry, it will bomb them back to the
> stone age (for them, about the 1960's). Personally I find this a
> good thing.
>
> Because insurance and the health industry are in the same economic
> whirlpool, there are quite a few floated options that would also
> reform the health industry specifically, those that prevent insurers
> from controlling treatments or countermanding doctor's orders by
> refusing to pay or capping lifetime payments or rejecting people
> based on existing conditions. I don't know about "reform" but these
> portend some massive changes to health care per se, putting the white
> coats back in charge over the gray suits.

Aug 16 11:01 PM

[Paul168:]

Silly me, I was thinking that he sold HD because it is fairly overpriced and he wanted to take a profit.I was also thinking that the health care companies he sold aren't run well enough or efficiently enough to do well against the public option. The only move I don't understand is KMX which I don't follow. Not knowing where he bought it, I figure he is either taking a small gain or a loss for writing down some losses against the huge gains he has made on other sales.But what do I know?.I don't go around bashing Obama, who has only been in office 8 months and has had a lot of crap to clean up and can't magically get it done fast enough for you folks that think things were just fine before he took over.

Aug 16 11:50 PM

[Paul H. M.:]

Let's remember, France has the #1 health care system in the world.

Also, if the government option is so bad, then private options should have no problem getting customers. Right?

That's how it works in France, where private health care still thrives despite the government helping out with those who can't get into private systems.

Aug 17 02:16 AM

[AuGod!:]

Most know Warren E. Buffett as one of the world's most savy investors, and recently (Sept. 08) we can look to Goldman Sachs for some justification for that. His position in Goldman is probably now worth $9.1 billion, or about $4.1 billion more than what he paid 11 or so months ago. An Assistant Professor of Finance Linus Wilson, (University of Louisiana at Lafayette) calculated, Buffett's annualized return would be 111 percent if he sold his Goldman shares, which are held by his Berkshire Hathaway firm. It was noted that "in comparison, the federal government received a 23 percent annualized return for its Goldman investment." Goldman sought a cash infusion from Buffett last September for which he (Berkshire) received perpetual preferred shares in Goldman, which pay a 10 percent annual dividend, or $500 million a year. My source, widely read and publicly available, claimed that "Berkshire Hathaway also received warrants to buy $5 billion in common stock at a strike price of $115 a share, which could be used at any time within five years of the initial investment." And Professor Wilson's valuation included "a $5.5 billion valuation to Buffett's preferred shares and $3.2 billion to the warrants." It was said that Berkshire's reinvested dividends from the Goldman stake were worth about $400 million. The analysis was based on Goldman's closing share price of $160.46 in late July 2009. Now ladies and gentlemen, I know this is one example and that he has had his ups and downs but be fair. Can he still cook or can't he? Just a question with no political undertones.

Aug 17 11:22 AM

[HLO:]

<Incidently, pretty soon HE will pay more taxes than his secretary, (Thanks to his buddy Obama)>
Not gonna happen unless he starts paying himself more than $100k salary from BRK. Of course, if he did that then you would criticize him for being a greedy CEO.


On Aug 16 11:13 AM Ralph Hunkey wrote:

> This individual is a "puke"......He should take his bag lunch and
> get out of "Dodge",,,,,,I think he realizes we are not falling for
> his "slick" interpertatrions that only benefit him......Incidently,
> pretty soon HE will pay more taxes than his secretary, (Thanks to
> his buddy Obama)
> If he buys a stock that I own, I sell it

Aug 17 12:59 PM

[HLO:]

I agree. I can't figure out KMX either. This was supposed to be a long-term bet that the American people's overconsumption habits are nearing an end. Real estate is done as a way for the average American to buy that new car every 4-5 years. I thought it was a smart move when he started accumulating KMX - I think it was around $16 when he was buying but even if it's under water now Buffet wouldn't care unless his long-term thesis is wrong or he doesn't have as much faith in KMX management as he did before. I have to think his economic premise is still valid so my uninformed bet is he's seen something in KMX management that he feels is a weakness.
It will be interesting to see if he says anything about this publicly. Obviously, he won't directly criticize management so we'll have to read between the lines.


On Aug 16 11:50 PM Paul168 wrote:

> Silly me, I was thinking that he sold HD because it is fairly overpriced
> and he wanted to take a profit.I was also thinking that the health
> care companies he sold aren't run well enough or efficiently enough
> to do well against the public option. The only move I don't understand
> is KMX which I don't follow. Not knowing where he bought it, I figure
> he is either taking a small gain or a loss for writing down some
> losses against the huge gains he has made on other sales.But what
> do I know?.I don't go around bashing Obama, who has only been in
> office 8 months and has had a lot of crap to clean up and can't magically
> get it done fast enough for you folks that think things were just
> fine before he took over.

Aug 17 01:10 PM

[1logicalthi...:]

to long_on_oil: my comments on your comments:

On Aug 16 11:00 AM long_on_oil wrote:

Had Operah not gone to Iowa... (Did you mean Oprah?

Powell or Rice would have been your first black president... (not "your" but everyone's)

I know I should not be posting this rant on this article... (we agree)

I will never be able to rationalize in my mind how someone as smart as Buffet can be so ignorant when it comes to politics. (and how a critic can be so ignorant when it comes to Mr. Buffett, not Buffet.)

Aug 17 03:30 PM

[HLO:]

Disagree. He made some really smart investments in convertable preferred stocks (remember Goldman Sachs & GE?). If your looking for Buffett to show substantial gains on anything he's "bought lately", then you're trying to evaluate a long-term value investor with the investment perspective of a day-trader.


On Aug 16 09:02 PM qwktrder wrote:

> You are 100% correct. He should just retire.He really hasn't made
> any substantal gains on anything he has bought lately.

Aug 17 06:46 PM

[nova:]

fwi wrote:
" Washington is trying to run Wall Street...
I think that Buffett's moves signify his negative view of the Democrat's handling of the economy."

WOW, fwi, are you for real? Wall Street RUNS Washington not vise versa.

As for Democrats running economy, Buffet is not a fool, and understands very well that Democrats will ruin the country and everybody else including him personally. Hyperinflation and following civil unrest will not take any prisoners.

Aug 19 10:36 AM

[Big Bubbette:]

Anyone heavily invested in the stock market has to be a cheer leader. It takes a lot of hot air to inflate a balloon.

Aug 19 01:06 PM

[EddieTa:]

He bought a lot of stuff during the second quarter, just not many stocks. He's been seeing better opportunities in bonds and preferred stocks. Tough to argue with the types of yields he's been getting -- e.g. GS and GE 10 percent.

Aug 19 03:33 PM

[Techtrader11:]

Suuuuuure it does. I thought all you moonbats insisted that Cuba had the best?

On Aug 17 02:16 AM Paul H. M. wrote:
> Let's remember, France has the #1 health care system in the world.

Aug 20 01:13 AM