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Ronald Delegge of recently released an excerpt from the January 2012 Issue of Research Magazine. In it, he asserts that Warren Buffett is a closet-Dow Jones Index investor, because he has amassed stakes in eleven of the thirty stock components of the Dow index. Here's what Delegge had to say about Buffett's relationship with the Dow Jones Index:

We know that financial product developers have thought about introducing a 'Warren Buffett ETF,' not because the investing public really needs it, but because there's no shortage of dubious ideas. Interestingly, though, financial marketers might not have to invent a Buffett ETF because one already exists. In November, Buffett plowed $10.7 billion into IBM for a 5.4 percent stake. It's Buffett's first foray into the technology sector, which he has purposely avoided throughout his illustrious career. Who needs iPads when you can have razor blades? A closer gander at Berkshire Hathaway's stock portfolio, which includes IBM along with American Express (AXP) and Coca-Cola (KO) among others, is an investment mix that almost resembles the SPDR Dow Jones Industrial Average ETF (DIA). DIA is linked to the Dow Industrials. After Buffett's IBM purchase, he now owns 11 of 30 Blue Chip stocks within the benchmark, which means he has another 10 Dow stocks to buy before he owns the entire group. In the meantime, if you want to buy an ETF that closely tracks Buffett's portfolio, DIA looks like the ticket.

Here's a snapshot picture of Buffett's list of investments as of his most recent letter to shareholders. The companies that Buffett owns which are also part of the Dow Jones Index are: American Express , The Coca-Cola Company , Johnson & Johnson (JNJ), Kraft Foods Inc. (KFT), The Procter & Gamble Company (PG), Wal-Mart Stores, Inc. (WMT), and Wells Fargo & Company (WFC). The other four parts of the Dow Jones that Delegge counts are-Buffett's special deal investment in Bank of America (BAC), the big purchase of IBM this year, the small position in Intel (INTC) purchased by Todd Combs under the Berkshire umbrella, and Buffett's special deal with General Electric (GE) which GE ended about a month ago.

There are three things that bother me about Delegge's comparison between Buffett's investment portfolio and the Dow Jones.

1. First of all, it's a little disingenuous to suggest that Buffett owns 11 of the 30 Dow components, or 36.6% of the index. The deal with General Electric was on terms that none of us could accomplish by owning the common stock, and the Intel investment is a very small stake picked up by Todd Combs, which will have a very negligible impact on the overall performance of Berkshire's portfolio. And, of course, including Bank of America seems way off base because Buffett did not purchase the common stock of the company, but instead worked out a very favorable deal on terms that are nowhere near what you or I would get if we bought shares of Bank of America's common stock. With that in mind, Buffett essentially owns stakes in 8 out of the 30 Dow Components.

2. The dangerous part about comparing Buffett to the Dow Jones is that it neglects one of the most fundamental determinants of one's investment returns-the price you pay for a stock. Coca-Cola currently trades around $68-$69 per share, and it's doubtful that Buffett considers this to be a bargain price. Buffett bought most of his Coke stock between 1988 and 1994, and has held it ever since. There's a difference between thinking a stock is worthy of keeping in your portfolio and thinking it's time to buy a stock for your portfolio. Wells Fargo and IBM are the two companies that Buffett has been purchasing aggressively this year, so we can fairly assume that Buffett thinks that they are trading at attractive prices, but it's dangerous to extrapolate to the stocks that Buffett is merely holding, but not adding to, in his portfolio. The time you buy and sell determine your returns in investing, and thinking that the purchase of a Dow Jones Index fund will mimic Buffett ignores this reality.

3. Even if Buffett's portfolio was remarkably similar to the Dow Jones, the concentration of Buffett's holdings are very different compared to the Dow. Buffett has stakes of over $10 billion in IBM, Wells Fargo, and Coca-Cola, coupled with a $6-$7 billion stake in American Express. That represents a serious tilting in his portfolio that is not replicated in the Dow Jones. Wells Fargo, IBM, and Coke have a very outsized influence on the returns of Buffett's investment portfolio which is a strong contrast to their much noticeably smaller representation in the Dow Index. Because of Buffett's concentrated bets on those 3-4 firms, it would be foolish to think that purchasing a Dow Jones Index is in any way a proxy for what Buffett's doing with Berkshire's investment portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.