Be Careful Following Claims Of Buffett Investments

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Includes: AXP, BRK.A, BRK.B, COP, KO, PG, PSX
by: Tim McAleenan Jr.

If there is anyone out there that investors would feel confident mimicking, it's probably Warren Buffett. Just by looking at his most recent letter to shareholders, it's easy to see why: Buffett's $1.3 billion investment in Coca-Cola (KO) has turned into $14 billion, Buffett could sell $450 million worth of his Gillette investment for $5 billion (it is now part of Procter & Gamble (PG) ), and Buffett could sell $1.3 billion worth of his American Express (AXP) investment for over $7 billion. Given Buffett's stock picking track record, it's perfectly understandable to see why some investors would look to his investment decisions with keen interest.

But when we hear news of Buffett buying something, we need to be careful to make sure that it actually represents…well, Buffett buying something.

For instance, Sue Chang of Market Watch put out an article titled "Phillips 66 Gains on Report of Buffett Investment" that offers this information:

"Shares of Phillips 66 (PSX) jumped on Friday in response to a report that billionaire Warren Buffett invested in the refiner which had spun off from ConocoPhillips (COP) earlier this year."

Similarly, Steve Gelsi of Market Watch put out a story titled "Buffett Gases Phillips 66" that offers this news:

"A report that marquee investor Warren Buffett waded into shares of Phillips 66 sparked healthy gains in shares of the refiner on Friday, as energy stocked rallied with the broad equities market. Shares of Phillips 66 jumped 5% after the Berkshire Hathaway founder and chief Buffett told Bloomberg News he reduced his holdings in ConocoPhillips and bought into Phillips 66, a recent newcomer to the S&P 500."

What's the problem with these investment updates on Warren Buffett? Well, they don't actually represent investments that Buffett himself has made. The Associated Press gets the Buffett report right with this news update:

"Shares of Phillips 66 rose Friday after billionaire Warren Buffett said a Berkshire Hathaway (BRK.A) investment manager purchased shares in the oil refining company. During an interview on Bloomberg television, the chairman and CEO of Berkshire Hathaway Inc. said one of his company's new investment managers purchased the stock of Phillips 66, which was spun off by ConocoPhillips in May. Buffett didn't disclose any details of the investment, but he has said that investments made by managers Todd Combs or Ted Weschler tend to be smaller than those he makes. So the Phillips 66 investment likely was worth somewhere between $200 million dollars and $1 billion."

There's nothing wrong with Todd Combs and Ted Weschler. They both have outstanding records of investment success, and there's a reason why Buffett hired them. It's not an insult to either of them to suggest that there is a difference between a Buffett investment and a Combs/Weschler investment.

It's a shame that some media outlets will report any Berkshire (BRK.B) move as an action by Warren Buffett. In this case, it's wrong to assume that Buffett has been gobbling up shares of Phillips 66. To the extent that Buffett's moves affect your own investment calculus, extra diligence may be required in determining whether Buffett or his assistants are making a particular stock purchase. It's just a shame that sorting through prominent media misreporting is part of the process.

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