Buffett's new strategy: Buy High, Sell Low?

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October 13, 2009 – Comments (2) | RELATED TICKERS: COP , XOM , BP 

I'm talking about Conoco Phillips (COP). Anybody following the activity of Warren Buffett's company, Berkshire Hathaway, on COP must admit that Buffett does not seem like himself lately. The legendary investor who champions value investing bought COP at the very top, during the oil spike of 2008. His average cost is probably around $78. Realizing and admitting his mistake in his annual report, Buffett began selling his stake in COP to harvest capital loss -- only to find that he sold at the bottom, just before one of the biggest rallies ever. He sold a significant chunk of his COP shares, probably around $43. Capital loss benefits cannot justify locking in a 44% loss for his shareholders. More importantly, has he ditched his favorite buy-and-hold-forever strategy?

If Buffett happens to find this Motley fool blog -- okay, if I was so lucky to meet him, I would like to ask a simple question: how will you explain this in your next annual report? Just another mistake, we sold at the bottom?

The Real Reason for Berkshire Hathaway to Invest in Burlington Northern Santa Fe Corp.

Warren Buffett's attraction to Burlington Northern Santa Fe (BNI) may be due in part to the railroad's strategic importance to Berkshire Hathaway.

In recent years Buffett has increasingly been building up Berkshire's energy portfolio, primarily through its MidAmerican Energy Holdings unit. Energy has now joined insurance as one of Berkshire's two major sectors.


MidAmerican's energy assets include coal-fired power plants in the midwest for MidAmerican Energy Co. and the Pacific northwest for PacifiCorp. Take a look at BNSF's network map, and you'll see that the railroad's tracks go right through the states in which MidAmerican Energy Holdings operates.


As much as environmentalists decry the effect coal has on the environment, it's still the raw material that generates the vast majority of electricity in the U.S. That's not likely to change anytime soon. If plug-in hybrid vehicles grow in popularity, that will leave the country less dependent on oil but more dependent on electricity, which translates into the need for more coal.


The coal that BNSF hauls is responsible for more than 10 percent of the electricity produced in the U.S. More than 90 percent of BNSF's coal comes from Wyoming and Montana's Powder River Basin, whose abundant low-sulfur coal burns cleaner and, according to the company, more economically for utilities.


In other words, it's likely that Burlington Northern will be hauling ample coal for the foreseeable future, and its customers presumably include the power plants controlled by MidAmerican. Is it possible that Buffett's attraction to BNI stems from the desire to control an important shipping vehicle for Berkshire's growing array of power plants?


That seems logical. While most investors choose individual stocks solely for the prospects of that one company, Buffett is thinking about the big picture for Berkshire. Should Buffett someday make a bid for the entire company, Burlington Northern would seemingly complement MidAmerican, while also profitably hauling freight for outside companies.


This is not to say that the other theories behind Buffett's big bet on BNI have no merit. The company does seem poised to profit off a rebound in imports from China. It will be a cheaper alternative to trucking should oil prices go back up. It would be virtually impossible for a competitor to replace Burlington's massive rail network, which gives BNI the moat that Buffett so desires. But it seems feasible that Buffett is also looking at how BNI could someday fit into the Berkshire organization as a stand-alone firm.


One fact that weakens this argument is that Berkshire hasn't bought any BNI shares for many months now. Berkshire still owns about 22.6 percent of the company, a stake worth $6.3 billion. BNI is still trading around $80 a share, which is about where Buffett bought many of the shares.


Remember, however, that Buffett didn't complete his purchase of GEICO for Berkshire until 1994, nearly two decades after he bought a major chunk in the 1970s.

Is it possible that Berkshire will follow a similar path to owning BNI outright? Only time will tell. But if the company does, it will own a valuable transportation network to link up its growing power portfolio.

Warren Buffett: Stocks Don't Always Beat Bonds

Warren Buffett: Stocks Don't Always Beat Bonds

Stocks aren't a lock to beat bonds even over a period as long as 20 years, Warren Buffett points out in Saturday's Wall Street Journal.

Buffett made the comments in an interview with Jason Zweig, a talented financial writer who pens "The Intelligent Investor" column for the WSJ each Saturday. He's been involved in revising Benjamin Graham's classic investing text "The Intelligent Investor" and also has a fascinating book on the emotions of investing called "Your Money and Your Brain."


Zweig's most recent column tries to dispel readers of the notion that stocks are a sure thing to beat bonds even over fairly long periods. He points out that bonds beat stocks in the 20-year period that ended June 30. 
Zweig spoke to Buffett this past week for the column. Buffett, who has been putting more money to work in the bond market than the stock market of late, points out that the key determinant for whether bonds or stocks provide better long-term returns is the price at which the investment is purchased.


"People say that stocks have to be better than bonds, but I've pointed out just the opposite: That all depends on the starting price," the Berkshire Hathaway CEO told Zweig.


Buffett does say that investors who hold the S&P 500 for long periods have exceedingly good odds to show at least some gains (which likely provides some of the rationale behind Buffett's decision to sell close to $5 billion worth of long-term put options on the S&P 500 and other major indices). Buffett tells Zweig that the odds of losing money on the S&P 500 over 25 years are roughly one in 100. That of course does not take inflation into consideration. 
Zweig tries to make clear in the column that the risk of owning stocks doesn't simply go away if your holding period is long enough. People who buy in at inopportune times may have to wait decades to recoup their money.


As an example, Zweig points out that someone who invested $1 million in U.S. stocks on Sept. 30, 2007, would have had just half that at the beginning of March 2009. People forced to retire at that time could find themselves in real trouble.


"In short, you can't count on time alone to bail you out on your U.S. stocks," Zweig writes. "That is what bonds and foreign stocks and cash and real estate are for."

Cisco Systems Heeding Advice of Warren Buffett

Cisco Systems Inc. is heeding the words of Warren Buffett and getting greedy while others are fearful.

Cisco announced yesterday that it would pay $2.9 billion cash to buy Starent Networks Corp., which makes software and equipment for wireless carriers. 

It's the second cash deal Cisco has made this month. It also announced that it was buying Tandberg ASA of Norway for about $3 billion.

Following the Buffett mold, Cisco had squirreled away $35 billion in cash as of the start of this quarter. Sensing a market bottom, Cisco is now getting greedy with its cash horde.

The Wall Street Journal today quoted Cisco CEO John Chambers as saying the company would be "the most aggressive" it's ever been this year and next in making acquisitions.

Cisco was owned by a number of well-known value investors as of June 30, including Bill Miller, Bill Nygren and Ronald Muhlenkamp. Of the value gurus, Muhlenkamp had the highest allocation of Cisco in his fund's portfolio.

Cisco was The Muhlenkamp Fund's fourth-largest holding as of June 30, trailing only IBM, Bank of America and Oracle. Interestingly, IBM and Oracle also fit the bill of cash-rich technology companies getting greedy as the economy begins to improve,

The famously tech-averse Buffett would probably never invest in Cisco, at least in any meaningful way for Berkshire Hathaway. But that doesn't mean Cisco can't learn the lessons that have worked so well for Buffett and his shareholders.

Милиардерите под строй 
13.10.09 11:48


Супербогатите китайци безспорно са възстановили позициите си, разклатени от финансовата криза, като в момента в Китай има повече известни доларови милиардери от всяка друга държава, с изключение на САЩ. Това сочи публикувано изследване, цитирано от Reuters. 

Според проучването, изготвена от специализираната издателска група Хурун рипорт (Hurun Report), в Китай има 130 известни доларови милиардери спрямо 11 миналата година. Броят им в САЩ е 359, а в Русия и Индия те са съответно 32 и 24, според американското списание Forbes. 

Богатите китайци стават по-богати, като средното състояние в класацията е 571 милиона долара - с близо една трета повече от миналата година, посочва съставителят Рупърт Хугуерф. 

Списъкът на най-богатите китайци тази година се оглавява от Ван Чуанфу - председател на управителния съвет на компанията за производство на електрически автомобили и батерии BYD Co Ltd, в която дял има американският милиардер Уорън Бъфет - със състояние, оценено на 5,1 милиарда долара. Той също така се е изкачил с най-много позиции в класацията на богаташите - с цели 102 стъпала.