At The Motley Fool, we understand that it often pays to zig when professional investors zag, but that doesn't mean we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.
The big picture
Warren Buffett is a familiar name to anyone who follows the investment world, with his Berkshire Hathaway (NYSE: BRK-A, BRK-B) company increasing its per-share book value by an annual average of 20% between 1965 and 2010, leaving the S&P 500 in the dust with its 9%. Clearly, the guy has a knack for making smart investments.
Buffett isn't your typical fund manager – in fact, he doesn't run a fund at all, but rather a large conglomerate most accurately described as an investment company. He owns many businesses in their entirety, from See's Candies to car insurer Geico and clothing company Fruit of the Loom as well as having tens of billions of dollars invested in the shares of listed public companies.
Berkshire Hathaway's stock portfolio totalled a massive US$66 billion in value (around one and a half times the entire market value of Telstra (ASX: TLS)) as of Dec. 31, up 12% over just last quarter.
The company's biggest holdings range from familiar long-time positions such as Coca-Cola (NYSE: KO) and Wells Fargo (NYSE: WFC) to newer names, including IBM (NYSE: IBM) and digital television provider DIRECTV (Nasdaq: DTV).
Before we delve into changes in the portfolio, it's important to note that the collection of stocks and its management is not handled entirely by Mr Buffett. For many years, Lou Simpson managed the 0069nvestments of Berkshire subsidiary Geico, and now there are two newcomers in the fold, one or both of whom may end up succeeding Buffett at the company's investment helm. They're Todd Combs and Ted Weschler, and some of Berkshire's investment moves reflect their thinking.
So what does Berkshire's latest disclosure tell us? Here are a few interesting details:
A new holding is dialysis service provider DaVita (NYSE: DVA), representing less than half a percentage of the portfolio. Many health-care stocks are compelling long-term investments, due to our growing and aging population. This is likely a Weschler buy. It generates a lot of cash flow, but it has also recently been accused of wasting medicines in order to collect more money from Medicare. That news set the stock back, presenting a buying opportunity for those with faith in the company.
Berkshire's stakes in IBM and Intel (Nasdaq: INTC) increased by 11% and 23%, respectively, though the IBM position is far larger, at $11.8 billion, versus less than $300 million for Intel. Still, it's big news to see technology companies in the portfolio at all, as Buffett has long avoided them, explaining that it's hard for him to know how they will be doing in 10 years. But he highlighted IBM's five-year plan as an outstanding roadmap for him as an investor.
Berkshire sold out of its position in ExxonMobil (NYSE: XOM) entirely over the quarter. The stock's valuation may have played a part, as the price surged 17% during the quarter, but its departure is more likely tied to some of the issues it faces, such as a slowdown in production, falling prices for natural gas, and its operations in not-so-stable Iraq and tension-ridden Russia.
The number of Johnson & Johnson (NYSE: JNJ) shares held shrank by 22% during the quarter. Long revered and admired as a giant in consumer products, pharmaceuticals, and medical devices, J&J has seen its reputation tarnished somewhat lately, on news of various mishaps and questionable decisions such as selling artificial hips overseas that were not approved by the US Food andDrug Administration. Berkshire's stake in the company is still sizable, though, at roughly $2 billion.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart people are doing – especially people with the track record of Buffett.
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A version of this article, written by Selena Maranjian, originally appeared on fool.com. It has been updated by Scott Phillips.
Scott is The Motley Fool's feature columnist. Scott owns shares in Berkshire Hathaway, Telstra, Coca-Cola and Johnson & Johnson. You can follow him on Twitter @TMFGilla . The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.