Warren Buffett’s Berkshire Hathaway invested $24 billion in the third quarter, the firm’s biggest commitment of new cash in 15 years.
It’s possible to over-analyze Warren Buffett’s investment moves. But that doesn’t seem to stop anyone, and the Oracle of Omaha’s latest disclosures are whipping up a stir over prospects for a robust recovery.
Buffett’s Berkshire Hathaway invested $23.9 billion in the third-quarter, the firm’s biggest commitment of new cash in at least 15 years. This figure includes the outright purchase of chemicals maker Lubrizol for $9 billion and another $5 billion in Bank of America preferred shares and warrants. Berkshire also laid out $7 billion for a smattering of common stocks under the label “commercial, industrial and other.”
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The investment in economy-sensitive shares is what has tongues wagging. Buffett has long favored financial and consumer-products firms like Wells Fargo and Coca-Cola. But his recent activity boosted his industrial holdings by a stunning 62%. “He sees something, and it’s big,” Buffett watcher Thomas Russo, a partner at Gardner Russo & Gardner, told Bloomberg Businessweek.
Adding intrigue to the Buffett investments: He asked the government for and was granted temporary permission to keep secret the names of the stocks he bought. That suggests he is still building his position in industrials, which further conjures the image of a strengthening recovery.
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But before rushing to copy Buffett’s move into economy-sensitive stocks — or get too giddy about a recovery — consider a few key points:
- Buffett bought as stocks got pummeled last quarter. In fact, his single biggest day of purchases was Aug. 8, as the market plunged nearly 7% on news that S&P had downgraded U.S. government debt. Yeah, you remember that. Were you buying? This is called fearless bargain hunting. When you are as disciplined as Buffett, you get good stocks at a low price and just have to wait. You don’t even need a strong recovery to profit.
- Buffett is the definition of patient investing. He’s owned Coke for 20 years. He knows the economy will recover eventually, and when it does his economy-sensitive shares will pay. But it doesn’t have to happen next quarter or even next year. He’s willing to wait. So don’t read this as signaling a quick rebound.
- Buffett makes mistakes. Okay, he doesn’t mess up a lot. But he has owned up to a handful of poor investment choices in recent years, including his purchase of shares of Conoco Phillips, U.S. Air and Dexter Shoes. His move into economy-sensitive shares might be early.
- Buffett often cannot be copied. Consider his $5 billion investment in Bank of America preferred and warrants. That deal was not available to other investors. The preferred pays a healthy 6% yield and the warrants could allow him to double his money in a few years. Nice. If you had tried to copy Buffett by investing in the bank’s common shares you’d have nothing to show for it but losses.
Is Buffett worth paying attention to? Of course. Is it fun trying to read his signals? Absolutely. But if you’re going to get caught up in his every move why not just buy Berkshire stock and go along for the ride?