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Half Baked CNN Coverage of Berkshire Hathaway's latest stake adjustments

|Includes:DG, Mondelēz International, Inc. (MDLZ)

CNN Money ran an article on 08/15/11 titled “Buffet Adds $58 Million Stake in Dollar General” with the opening line “If you want to invest like Warren Buffett, start by adding Dollar General to your portfolio and offloading shares of Kraft”. Anyone glancing at the headline and the first lines would gather Warren Buffet to be mighty bullish on Dollar General and bearish on Kraft. The complete truth however went largely missing. There is no denying $58 million is a solid chunk of change – but it pales in comparison to Buffet’s investment portfolio size which towers at over $115 Billion (~$48B Cash, ~$67B Equity). This brings the value of the new stake in Dollar General to be just 0.05% of his total investments. It is also a fact that Buffet bid adieu to six million shares of Kraft during the second quarter. The article conveniently omitted to mention that his remaining stake of 99.5 Million Shares of Kraft is valued at around $3.5 Billion which is around 3% of the value of his total investments. The naked truth is that Berkshire Hathaway’s current stake in Kraft is valued at over sixty times the value of his new Dollar General stake. The article naively implies getting rid of Kraft and buying Dollar General is a sure bet to be an investor like Buffet.

Rather than quoting large numbers, let us cut to the chase and compare how changes in the share price of Dollar General and Kraft will impact Berkshire Hathaway’s overall portfolio value. The task at hand is to have a 1% impact on Berkshire Hathaway’s investment portfolio, and for that the overall portfolio value has to increase or decrease by around $1.15B. The table below shows how Dollar General’s (NYSE:DG) and Kraft’s (KFT) stock prices should move to have the 1% impact on Berkshire Hathaway’s portfolio:

Stock Berkshire Hathaway Holdings Value Current Price per Share Projected Price Per Share for 1% Performance Imapct
Dollar General (DG) $58M $32.19 $670.44
Kraft (KFT) $3.5B $34.68 $46.07
Click to enlarge

Dollar General’s price per share has to go up to $670.44 from the current share price of $32.19 for Berkshire Hathaway’s Dollar General Holdings to have a 1% positive performance impact on the overall portfolio. By the same token Kraft’s price per share only needs to go up from $34.68 to $46.07 to have the same impact. To summarize, the CNN articles’ premise is completely misleading - the portfolio adjustments in the second quarter 2011 are very minor compared to the overall portfolio size to warrant any such judgment call. Furthermore, Berkshire Hathaway’s 2nd quarter 2011 adjustments may have nothing to do with Warren Buffet’s stock selection. It is highly likely that the Dollar General (DG) pick was by Todd Combs, the hedge fund manager Buffet tapped in late 2010, as the amount involved is comparatively little. While the article by CNN Money did a disservice to the investing community, articles from Bloomberg and Morningstar did convey reputable information. Readers can also find the information by comparing Berkshire Hathaway’s latest 13F SEC filing with their previous filing.

Stocks: MDLZ, DG