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Buffett Buys GM Just Before Drop

Written By Brian Hicks

Posted July 10, 2012

Berkshire Hathaway scooped up 8.47 million shares of General Motors Co. at approximately $24.35, right before GM dropped 16 percent.

Recently, Buffett has been handing over increasing responsibility in picking investments and stocks to others, as the 81 year old Oracle of Omaha sets the stage for his retirement.

He has stated that while he still oversees the big trades himself, his recently-hired hedge fund managers Ted Weschler and Todd Combs oversee around $2.75 billion and make calls on smaller trades.

Although GM rose back up to the spot of world’s largest automaker and produced a record profit of $9.19 billion, their shares decreased by 45 percent last year.

Post-bailout, the US government continues to own 32 percent of GM.

Much of GM’s problems may be attributable to the Eurozone financial crisis, because of which they lost $16.4 billion in the region since 1999. The recent drop offers Berkshire more opportunity to get into GM—a good thing considering how US cars are aging and consumers seek to replace them.

From Bloomberg:

“It’s probably an advantage of Berkshire’s model that they don’t have to” focus on short-term results, Meyer Shields, an analyst at Stifel Nicolaus & Co., said in a phone interview. “The long-term track record of equities is pretty solid. So if you get yourself in that position, where you can endure a lot more fluctuation than almost any other investment company, then you should be able to benefit.”

Despite the post-purchase swing, Berkshire may be able to profit from holding onto the GM acquisition.