Buffett Made Biggest Bets on Stocks This Year

By Andrew Frye - Aug 16, 2011 9:21 AM GMT+0800

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) increased its stake in Wells Fargo & Co. (WFC), building equity holdings amid a markets decline that the billionaire investor said provided an opportunity for buying stocks “on sale.”

Buffett’s firm added 9.7 million shares of the biggest U.S. home lender in the three months ended June 30, boosting the holding by 2.8 percent, Omaha, Nebraska-based Berkshire said yesterday in a filing that listed its U.S. stockholdings. Berkshire accelerated purchases on Aug. 8 as the Standard & Poor’s 500 Index plunged 6.7 percent, its steepest decline since December 2008.

“I like buying on sale,” Buffett, Berkshire’s chief executive officer and head of investments, said in a television interview with Charlie Rose to be broadcast on PBS. “Last Monday, we spent more money in the stock market buying than any day this year.”

Buffett, 80, is spending on stocks and takeovers as near- record low interest rates limit returns in fixed income. Banks, facing tighter regulation, can “still be plenty profitable,” Buffett said last month. San Francisco-based Wells Fargo, which counts Berkshire as its biggest shareholder, fell 12 percent in the three months ended June 30 and has slipped 11 percent in the current quarter.

The increase in the Wells Fargo stake cost Berkshire about $277 million, assuming purchases came at the bank’s average trading price for the second quarter of $28.53 a share.

Stay Tuned

“It looks to me that he couldn’t resist topping up,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner. “Stay tuned. If he liked it at the quarter’s end, and he has as much cash as he had, there’s no reason to think he might not have liked it more in the early half of August.”

Wells Fargo rose 89 cents, or 3.7 percent, to $25.02 yesterday in New York Stock Exchange composite trading, valuing Berkshire’s stake at $8.8 billion. Wells Fargo, led by Chief Executive Officer John Stumpf, has slid 19 percent since Dec. 31, better than the 25 percent decline in the KBW Bank Index. Berkshire Class A shares have fallen 9.8 percent this year.

Berkshire added a stake in retailer Dollar General Corp. (DG) in the second quarter and increased holdings in MasterCard Inc. (MA) by 88 percent. Buffett’s firm cut its stake in Kraft Foods Inc. by about 5.5 percent to 99.5 million shares.

Buffett, Berkshire’s chairman and CEO, is reshaping the equity portfolio with Todd Combs, who was hired as an investment manager last year. Combs was assigned to oversee as much as $3 billion with a focus on equities and can make trades without consulting Buffett. It was Combs, 40, who in the first quarter added a stake in MasterCard, a firm that he had bet on while managing hedge fund Castle Point Capital Management LLC.

Dollar General

The Dollar General stake, valued at about $48 million as of yesterday, may also have been taken by Combs, said Russo, citing the size relative to larger Buffett bets. The addition of Goodlettsville, Tennessee-based Dollar General expands Berkshire’s holdings of discount retailers. Buffett’s firm owns stock in Wal-Mart Stores Inc. and Costco Wholesale Corp.

Berkshire’s Dollar General investment “is almost like a bet on a declining economy,” said Mark Montagna, senior analyst following retailers at Avondale Partners LLC.

Berkshire’s biggest holdings, including Wells Fargo and Coca-Cola Co. (KO), have slipped in the last three weeks as global equity markets retreated. Buffett has reiterated his view that the U.S. would avoid a second recession in three years.

“Financial markets create their own dynamics, but I don’t think we’re facing a double dip,” Buffett told Bloomberg Television’s Betty Liu in an interview on Aug. 6.

Confidential Trades

Berkshire omitted information about its portfolio for the second straight quarter. The U.S. Securities and Exchange Commission sometimes allows companies to withhold data from the public to limit copycat investing while a firm is building or cutting a position.

Berkshire’s equity portfolio was valued at $67.6 billion as of June 30, with 40 percent in consumer-products firms and 37 percent in financial companies such as banks and insurers. The rest was in a group Berkshire labels “commercial, industrial and other.”

Buffett agreed in March to spend $9 billion on engine additives maker Lubrizol Corp., and this month offered to buy reinsurer Transatlantic Holdings Inc. for about $3.25 billion. Berkshire held $47.9 billion of cash as of June 30.

Yesterday’s filing by Berkshire includes U.S. holdings. Equity investments abroad are reported to local regulators.


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