At the annual meeting, one of the questions was, and I paraphrase - why should we invest in Berkshire when we can just follow the public reports of your investments and make those investments yourself. Charlie Munger leaned forward and simply said (still paraphrasing), I think that would probably be a decent strategy, to find investors who you believe in and mirror their investments. The concept behind the questioners strategy is known as “piggybacking.” I’ve talked about piggybacking on the blog before.
There are definitely some obvious risks involved in piggybacking, in that you don’t know why an investor bought a particular position, at what price, or when they intend to sell. That being said, it can be a great place to start your research if you’re interested in investing in individual securities. Lots of the stuff Buffett buys has to be reported in accordance with SEC rules (which are voluminous – one such rule is that if you buy or sell stock in a company that you own 5% or more of it has to be reported).
Buffett has already been in the news this week for some of his recent buys and sells. A lot has been made about a comment he made regarding Wells Fargo (WFC), saying that if he had to go all-in on one stock, that would be the stock (reportedly he was referring to WFC when it was at $9/share – now trading at $26.93). It was reported today that he’s been backing up that statement by increasing his positions in both Wells Fargo and US Bancorp (USB). He also added to his position in Johnson & Johnson (JNJ), which he was selling not too long ago – a move he explained by saying that it was necessary to sell some at the time in order to fund other acquisitions.
He’s also reportedly been trimming his stake in ConocoPhillips (COP), which he made a big bet on at peak oil prices in 2008 – a move he has since publicly called a mistake. His reported reason for selling COP is for “tax reasons.” I don’t know if Buffett is being coy because he doesn’t want to sink the market for a stock he’s going to be selling over the next quarter, or if he’s just being honest. The tax reason that springs to mind would be a situation where he was realizing some losses in order to offset some capital gains. This might be necessary because Buffett doesn’t sell at a loss that often. It’s a plausible situation. I don’t know. Keep both possibilities in mind.
So should you run out and buy Wells Fargo, US Bancorp and Johnson and Johnson? Should you immediately liquidate your position in ConocoPhillips? I don’t know. Buffett does tend to buy stocks that outperform the market over the long haul. In any case, you should understand the underlying reason for buying these stocks, know something about valuation and be able to buy with a disposition that won’t cause you to sell at the first sign of trouble. When buying anything, you need to determine a fair value point, and sell when the stock approaches that point or passes it. I definitely take notice when Buffett is in the news buying or selling. I do the same thing with Seth Klarman, whose investments are harder to assess because they tend to be companies I’ve never heard of, since he mainly focuses on small-caps. Good luck. Thanks for reading.
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#1 by the weakonomist on May 19th, 2009 - 5:48 am
Why waste all the energy flowing buffetts investments and portfolio allocations when you can simply go along for the ride and not think about it by buying Berkshire?
Whomever asked that question was being a smartass.
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Todd Reply:
May 19th, 2009 at 10:27 am
My wife and I do own some Berkshire stock. That being said, I don’t think piggybacking is a waste of time or energy. It’s been advocated by Ben Graham, Buffett, Peter Lynch and a slew of others. Berkshire faces some limitations because of it’s size. With a market cap around 150B, it’s a lot easier for profits to get lost in the shuffle.
And while you can invest in Berkshire, you can’t invest in Baupost Group, Seth Klarman’s investment vehicle, since it’s been closed for years. He’s made an average annual return of around 26%, while keeping almost half of his fund in cash. If you can do half as well by piggybacking Klarman, it’s something worth your time.
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#2 by Rachel on June 18th, 2009 - 8:21 pm
The shareholders meeting was great! Wouldn’t it have been cool to have a picture of me on your back at the meeting as the picture attached to this topic? It would have had multiple meanings!
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