Warren Buffett Portfolio Strategies

Written By Briton Ryle

Posted February 5, 2013

“or·a·cle [awr-uh-kuhl, or-] noun; definition 4: a person who delivers authoritative, wise, or highly regarded and influential pronouncements.”

– Dictionary.com

If someone with those credentials speaks, we’d do well to listen; if he acts, we’d do well to take a cue. As the Oracle of Omaha, Warren Buffett’s moves are with good reason, then, carefully scrutinized.

So what has the most well-known stock investor been trading lately? And perhaps more importantly, what do his trades tell about the future of stocks and the economy?

Let’s take a look at some of his most recent transactions, and perhaps sneak a little peak over his shoulder at what he sees in his crystal ball.

We just need to do one very important thing before we start examining his moves: we need to pay careful attention to the time scale running from left to right along the bottom of Mr. Buffett’s crystal ball… it is set to years, not days.

He is not a stock trader, but a stock investor. That’s a very important distinction to make, because it helps identify the man’s reasoning behind his transactions.

He doesn’t trade for the short term; he invests for the long term. And if we wish to take some cues for our own portfolios, we must slide our own time rulers to the same long term scale.

Have you adjusted your time horizon now? Good. Let’s proceed…

First up, look up, way up at that hot yellow ball of fire in the sky. Though I can’t quite picture Warren sunning it up on a sandy California beach, this recent transaction of his definitely shows his appreciation for its power…

From the Huffington Post:

“Berkshire [Hathaway] utility MidAmerican Energy Holdings Co will pay SunPower between $2.0 billion and $2.5 billion for the 579-megawatt (MW) Antelope Valley solar projects, and for designing, installing and constructing them…”

These southern California solar installations further expand Berkshire Hathaway’s (NYSE: BRK.A) MidAmerican Energy’s stake in the renewable energy sector. Earlier, the company took a 49% chunk of a 290 MW solar plant in Arizona, following the purchase of a 550 MW solar farm from First Solar Inc (NASDAQ: FSLR) back in 2011.

And with good reason, since more and more governments are recognizing the importance of alternative energy and costs are falling to compete with fossil fuels.

Next, we have a two-parter… International Business Machines (NYSE: IBM) enters the Biotech industry, and Warren buys more IBM.

In a joint effort with the Institute of Bioengineering and Nanotechnology, IBM has developed a new antimicrobial hydrogel that eliminates bugs and germs. The technology could quickly become very popular with medical facilities for easier sanitation of medical equipment and other surfaces.

And IBM is currently Berkshire Hathaway’s third top holding, worth some $13.8 billion.

Making further inroads into the healthcare industry, Mr. Buffett’s Berkshire has increased its holding of DaVita (NYSE: DVA), a “leading provider of kidney dialysis services in the United States for patients suffering from chronic kidney failure”, as its SEC filing says.

According to the company’s SEC filing:

“As of December 31, 2010, we operated or provided administrative services to 1,612 outpatient dialysis centers located in 42 states and the District of Columbia, serving approximately 125,000 patients. We also provide acute inpatient dialysis services in approximately 750 hospitals and related laboratory services.”

Worth some $1.5 billion, DaVita sits at the 9th spot in Berkshire Hathaway’s top 39 holdings.

Finally, remember early this year when Warren “guaranteed” the safety of U.S. banks? Well, how is this for a guarantee… he’s buying them.

Berkshire Hathaway’s second largest holding is Wells Fargo (NYSE: WFC) to the tune of $14.8 billion. It’s top three bank holdings – Wells Fargo, US Bancorp (NYSE: USB), and M&T Bank Corp (NYSE: MTB) – account for over 20% of the investment company’s portfolio.

In a recent Bloomberg interview, Warren explained the reason he likes banks so much is that “the capital ratios are huge.” And that “the excesses on the asset side have been largely cleared out.”

Have you found the common theme behind Mr. Buffett’s picking process? It’s not necessarily what is hot today, but rather, what is going to be in demand for a good, long time to come.

The Oracle elaborated in the above mentioned CNBC interview:

“Tomorrow’s always uncertain.” “But the future, the longer future, is always very certain. And that’s what you have to keep your eye on.”

Joseph Cafariello

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