Warren Buffett
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Date updated:08-20-2008

As of 6-30-08 filing:

New position: NRG

From the Wikipedia entry on Buffett:
Buffett employed a three-pronged approach:

1. Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics ([8])
2. Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc.
3. Controls: build sizeable holdings, ally with other shareholders or employ proxies to effect changes in companies

In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Buffett would eventually dissolve all his partnerships to focus on running Berkshire Hathaway. At the time, Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest holding companies in the world, as Buffett redirected the company's excess cash to acquire private businesses and stocks of public companies. At the core of his strategy were insurance companies, due to the large cash reserves ("float") they must keep on hand to pay out future claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds.

Under Munger's influence, Buffett's investment approach moved away from a strict adherence to Graham's principles, and he began to focus on high-quality businesses with enduring competitive advantages. He described such advantages as a "moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell undifferentiated products and face direct competition. A classic example of a wide-moat company is Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage with a similar taste. On the other hand, salt is considered a commodity product because consumers generally have no preferences for one brand of salt over another.

Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when buying whole companies rather than public stocks. As a result, it now owns a large number of businesses which are dominant players in their respective industries, specialize in various niche markets, or possess other unique characteristics to separate them from their competitors.

From Barron's Article "Questioning the Cult of Buffet"

Buffett is the greatest investor alive, but his prior successes have forced him to buy in $5 billion to $10 billion chunks to impact Berkshire's bottom line. Would a Blue Chip Stamps or a See's Candy make a bit of difference in Berkshire's portfolio today? Would it make a difference in yours?

Another downside to the problem of the too-much-cash for too-few-investing-opportunities paradigm is cash intoxication, which causes management to abandon sensibility and seek positive net-present value outside of normal business activities. Buffett's recent foray into less-than-zero-sum games, such as currency and commodity speculation, suggests he's susceptible to the effect.

The worst aspect of Berkshire's size and ballooning cash account is that Buffett has had to abandon the real source of his success -- concentrated contrarian investing. Buffett once said, "Wide diversification is only required when investors do not understand what they are doing." During the halcyon days of 1977-1983, when the share price soared from $100 to $1,000, Berkshire finished one year (1978) owning as few as eight publicly traded securities and never finished a year owning more than 18 (1980).


Resources on Buffett:
Wikipedia entry on Buffett
"Trade Like Warren Buffett"

symbol name last price % change open
  • +
  • KO
    Coca Cola Co The
  • $51.66
  • -0.58%
  • $51.66

% of portfolio: 17.9%

People owning KO also tend to own: AAAIGIBMINTCJNJJPMMSFT

TheStreet.com Rating: B What is this?

  • +
  • WFC
    Wells Fargo & Co
  • $31.01
  • -0.64%
  • $31.12

% of portfolio: 11.9%

People owning WFC also tend to own: ACEBACCCBCOPCVXDIS

TheStreet.com Rating: B What is this?

  • +
  • PG
    Procter Gamble
  • $71.42
  • +1.35%
  • $70.42

% of portfolio: 11.1%

People owning PG also tend to own: CLCTDENNFFEXJBSSJRCCMEEMSFT

TheStreet.com Rating: B What is this?

  • +
  • BNI
    Burlingtn N Sante
  • $103.92
  • -1.27%
  • $105.29

% of portfolio: 11.0%

People owning BNI also tend to own: AIGAKZOYANATAVTRAXPBRK-ACMCSK

TheStreet.com Rating: A- What is this?

  • +
  • AXP
    Amer Express Inc
  • $40.91
  • +0.69%
  • $40.50

% of portfolio: 9.8%

People owning AXP also tend to own: AIGALLBACBRK-BCCOFFNM

TheStreet.com Rating: C+ What is this?

  • +
  • JNJ
    Johnson And Johns
  • $71.51
  • -0.31%
  • $71.67

% of portfolio: 6.8%

People owning JNJ also tend to own: AAAIGIBMINTCJPMKOMSFT

TheStreet.com Rating: A- What is this?

  • +
  • KFT
    Kraft Foods Inc
  • $31.62
  • -0.25%
  • $31.57

% of portfolio: 6.8%

People owning KFT also tend to own: AAPLBACBBYBGTCSCOCTSHDEO

TheStreet.com Rating: B- What is this?

  • +
  • WSC
    Wesco Financial C
  • $370.00
  • -1.07%
  • $375.94

% of portfolio: 3.7%

People owning WSC also tend to own: DEOHBCJNJNYXPUISBUXUST

TheStreet.com Rating: B- What is this?

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