Learning From Warren Buffett’s Recent Actions

``Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.” - Warren Buffett

Unlike the average speculator, who prefers mainstream media and general forums as primary sources of information, it has become an obsession for us to improve the way we manage our portfolios by learning on how great investors manage theirs.

So instead of paying a hefty price for a Certified Financial Analyst (CFA) title, which does not guarantee one’s success except for a job at an investment house or financial institution, we try to keep track of materials or developments or analysis of our favorite investing icons on how they deploy their capital while comprehending on the way they approach the financial markets by possibly reading them literally or through their actions.

While we cannot totally assimilate on their investing styles, where like thumbprints our investing patterns are unique from each other with respect to returns expectations, risk profiles, time preferences, value formation and tools utilized to make investment decisions; we can adopt from them some of the positive characteristics as part of our portfolio management.

For instance, we have long noticed that the world’s greatest stock investor, the Sage of Omaha, Mr. Warren Buffett who was once a micro “bottom up” investor have been transformed into a macro “top-down” investor when he became cynical of the US economy, the US markets and the US dollar.

As an example the following are some of his known earlier quotes…``If we find a company we like, the level of the market will not really impact our decisions. We will decide company by company. We spend essentially no time thinking about macroeconomic factors” or ``Betting against America has been the stupidest thing since 1776.”

Today, Mr. Buffett is looking at “macroeconomic factors” as well hedging against America by heavily betting against the US dollar. Recently, one of the revealed secret currency holdings of Mr. Buffett had been the Brazilian Real as disclosed in an interview in Fox News.

In short, Mr. Buffett assumes on the changing conditions of the financial markets with an appropriate adjustment in his capital deployment strategies. So aside from patience, discipline, humility and full appreciation of risk return trade offs, Mr. Buffett’s other strong attribute is his ability to be flexible by keeping an open mind.

Yes, while his flagship company, the Berkshire Hathaway, recently sold their holdings in PetroChina shares with a stupendous gain of over 10 times, his move could have been construed as having yielded to pressures from several shareholders protesting PetroChina’s indirect political exposure to Sudan, through its parent company China National Petroleum Corp, where the African government is accused by the US of supporting the latest incidences of genocide. It is said that Berkshire has retained a very small exposure (about 3.15%) to the company from which would not require much of public disclosure.

Following last year’s $4 billion acquisition of 80% of Israel’s Iscar Metalworking Company and UK based retailer TESCO, Mr. Buffett has been on a spree to acquire about 20 South Korean Companies such as Posco (a steelmaker whose largest export market is in China and Japan), Kia Motors, Shinyoung Securities Co, Dae Han Flour Company and others.

Aside, Mr. Buffett’s acquisition during the last 6 months included 3 railway companies in the US, Burlington Northern Santa Fe, Norfolk Southern Corp and Union Pacific Corp, health care providers as United Health Group and WellPoint Inc., Pharmaceuticals as SanofiAventis and Johnson and Johnson, Financials as Bank of America and Dow Jones and Industrials as Ingersoll Rand (according to Gurufocus.com).

Figure 5: Gurufocus.com: Berkshire Hathaway’s Portfolio Distribution

Berkshire Hathway’s distribution has been weighted towards the financials, since his core business is the insurance unit General Re, and consumer goods, which he finds as easy to understand-ergo in a much better position to weigh risk, as seen in Figure 5 courtesy of Gurufocus.com.

If there are any clues that we can get from Mr. Buffett’s recent activities is that aside from directly hedging against the US dollar via the currency market routes, Mr. Buffett has been steadily building his company’s portfolio’s exposure towards emerging markets especially in Asia.

It is likely that this move could be representative of his first wave of investing forays into the Asian markets and could possibly increase his exposure soon, possibly in Japan and Taiwan, although he has recently warned of the steep appreciation of stocks in China. In effect, Mr. Buffett’s increasing presence in Asia buttresses our position that Asian stocks are in a secular advance phase.

Another, his recent exposure towards the railway business could be construed as a parallel play on commodities which has been levered to global growth. In addition, his recent buys in the pharma and healthcare sectors is a position on the retiring Baby Boomer generation and demographic trends.

In all, this is not to imply that we should copy his investing patterns or mimic on the issues which he positions but rather understand the reason why he has taken such actions. If we agree on the premises of his investing themes then we can act to invest accordingly based on the domestic market’s universe of available stocks.