What Buffett's Been Doing

By Greg Sushinsky | May 21, 2010 AAA

World's greatest investor Warren Buffett sold a substantial chunk of stock from his Berkshire Hathaway (NYSE:BRK.A, BRK.B) company during the first quarter of this year. The major sales involved Kraft Foods (NYSE:KFT), which Buffett was unhappy with due to his dislike of the Kraft-Cadbury deal. It is always noteworthy for investors to pay attention to what Buffett is doing.

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Voting With His Shares
Warren Buffett had openly expressed his dislike of the Kraft deal, as he felt Kraft overpaid for Cadbury which then dented the value of what he felt were the undervalued Kraft shares. Berkshire sold 31 million shares of Kraft, but remains the company's largest shareholder as it retains nearly 107 million shares, a 6.3% stake. This is not the only selling Buffett did in the quarter.

Berkshire completely eliminated positions for Sun Trust Banks (NYSE:STI), Travelers Insurance (NYSE:TRV) as well as United Health (NYSE:UNH) and Wellpoint (NYSE:WLP). Berkshire had previously reduced these positions in last year's fourth quarter. Other position reductions occurred in some big name stocks, including Conoco Phillips (NYSE:COP), Johnson & Johnson (NYSE:JNJ), Costco (Nasdaq:COST) and Procter & Gamble (NYSE:PG). Buffett added to stakes in Republic Services Group (NYSE:RSG), Iron Mountain, (NYSE:IRM) and Becton Dickinson (NYSE:BDX).

So What Does It All Mean?
Buffett raised cash to complete Berkshire's acquisition of Burlington Northern, a $26 billion deal. He has also been trimming positions in some of his holdings and adding to others, which may simply be a re-balancing of his mega-portfolio. The trouble with trying to discern the tea leaves on Buffett or any of the super investors is that they don't really tell you why they're doing what they're doing, and the 13-F form they must file with the SEC records what they've already done. Buffett also doesn't tell you why he does what he does, at least beforehand.

Investors who base their strategy on following the investments made by Buffett, it is important to remember the old adage, "actions speak louder than words". Will Ashworth wrote a great piece for Investopedia on this in April, titled so aptly "Do What Buffett Does, Not As He Says."

True Value Investing?
Do Buffett's curve balls from his initial intents mean he's dishonest? Hardly. He's simply keeping his strategy to himself, as he should. It is important to remember that major investors can influence market movements. If Warren Buffett announces that he wants to buy a certain company, shareholders will rush to acquire those stocks. As a result, the full benefits of the underlying shares will not be realized.

The Real Lessons of Buffett
Buffett is actually a super-sophisticated long-term combination investor/trader rather than a simple buy-and-hold-only fundamental value investor. Heresy, I know. Save the hate emails, please, we admire him. Berkshire's an oxymoron, a long-side hedge fund.

Buffett has historically been the most successful investor in the history of the market that we know of. He shows small investors, retail investors like us, how to take the basic value principles and modify them, adapt them fluidly to any situation. This is a dynamic principle, his genius really, for which he needs to be given great credit. We can't emulate his genius, but we can learn to apply some of that thinking as we invest. (They don't call him "The Oracle" for nothing. Learn how Buffett comes up with his winning picks. See Think Like Warren Buffett.)

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