Warren Buffett Goes Shopping

If you can't beat 'em, join 'em.

It's not surprising that mimicking Warren Buffett's moves over the years would leave you well ahead of the pack. That's why it's great news that as an elephant-sized investment vehicle, Buffett's Berkshire Hathaway (NYSE: BRK-A  ) is required to periodically report some of its investments.

The biggest move as of late, and probably the biggest move of Buffett's career, is the acquisition of rail giant Burlington Northern Santa Fe (NYSE: BNI  ) . Buying the $26 billion of Burlington that Berkshire didn't already own is the largest acquisition Berkshire has ever made.

In an interview with Charlie Rose this week, Buffett admitted he wasn't paying a bargain price, saying a "reasonable return is good enough." That's what happens when your balance sheet becomes staggeringly large. Outsized returns diminish with size. Several years ago, Buffett elaborated on this, saying, "I used to have more ideas than money. Now I have more money than ideas." No doubt, Burlington looked like an area to invest tens of billions of dollars and still achieve reasonable long-term returns -- no easy feat.

But what else has Buffett been up to? Have a look:

Purchases:

Company

Shares Purchased in Q3

Shares Now Owned

Wal-Mart (NYSE: WMT  )

17.9 million

37.8 million

ExxonMobil (NYSE: XOM  )

426,000

1.28 million

Wells Fargo (NYSE: WFC  )

11 million

313.4 million

Nestle

3.4 million

3.4 million

Republic Services

3.6 million

3.6 million

Sales:

Company

Shares Sold in Q3

Shares Now Owned

ConocoPhillips (NYSE: COP  )

7 million

57.4 million

Moody's (NYSE: MCO  )

1.15 million

38.07 million

Eaton

2 million

0

NRG Energy

1.2 million

6 million

One important thing to note: Smaller transactions are typically done by Lou Simpson, investment chief at GEICO (a Berkshire subsidiary), and not necessarily by Buffett himself. That said, the only purchases I'd say almost certainly came from Buffett's end are Wal-Mart and Wells Fargo. So we'll focus on those.

Wal-Mart is an interesting purchase because it's putting faith in the American consumer, but hedging that faith by betting on the frugality that Wal-Mart relies on. The past several decades were largely built on consumers trading up to luxury goods. The next several will likely be based on a new sense of frugality where the cheapest retailer, like Wal-Mart, wins. The amount of debt consumers are trying to work through makes this a near certainty.

The Wells Fargo purchases aren't too surprising; Buffett's been praising the bank all year. Few can argue that Wells Fargo isn't a world-class bank, particularly because of its low cost of capital. He's also been buying shares for the better part of this year, so saying these current purchases signal a change in Buffett's view of the financial system isn't accurate.

Back in October, my Foolish colleague Alex Dumortier took a stab at Wells Fargo's valuation, writing, "Wells Fargo shares are no longer a screaming buy, but I do expect them to beat the market's return by several percentage points."

One big question mark still hanging above Wells Fargo is the $25 billion TARP investment the U.S. Treasury holds. Unlike several of its peers, Wells Fargo hasn't been granted permission to repay the funds (which is slightly ironic, because Wells was really the only bank adamant that it didn't need the money last fall). When that happens, and how it happens, will seriously impact common shareholders.

If the goal is to maintain current capital ratios, the money will either have to come from earnings or via capital raises that dilute shareholders. At any rate, shares apparently still look attractive to Buffett, and I'm not nearly rich enough to argue otherwise.

What do you think about Buffett's latest moves? Feel free to share your thoughts in the comment section below.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway and Moody's are Motley Fool Stock Advisor selections. Berkshire Hathaway, Moody's, and Wal-Mart Stores are Motley Fool Inside Value recommendations. Republic Services is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended writing puts on Moody's. The Fool owns shares of Berkshire Hathaway, and has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (39)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2009, at 7:22 PM, tautech wrote:

    I am not a sufficiently sophisticated enough investor to explain or attack Mister Buffet's Walmart purchases but I do find myself wondering how this impacts Motley Fools choice of Costco as the new "King of retail" since I followed that advice and am wondering if follow on purchases should be rethought. Any thoughts Motley Folk?

  • Report this Comment On November 18, 2009, at 8:32 PM, ecoloney wrote:

    Having personally lost tens of thousands following Fool recommendations, I would caution anyone to take too seriously anything they have to "offer." No offense to them: they have many, many interesting points but I don't need anyone else to help me lose money now, before, or in the future. I can do that quite well on my own.

  • Report this Comment On November 18, 2009, at 9:14 PM, dividendgrowth wrote:

    I have been bullish on WMT ever since 2007. The company has fixed its reputation, resolved problems in many foreign operations, and now has a huge room to grow internationally.

    It's even more remarkable that WMT still grows its earnings in the worst retail depression during the last 80 years.

  • Report this Comment On November 19, 2009, at 9:29 AM, exdefanalyst wrote:

    I despise WMT with a passion. They seem to have taken the life out of our inner cities. Even though this company would have given me some good returns on my money, I cannot consent to their practices and have a hard time accepting their penny pinching their employees.

  • Report this Comment On November 19, 2009, at 11:33 AM, mikecart1 wrote:

    WalMart is a disaster in the making. Buffet is following suit.

  • Report this Comment On November 19, 2009, at 1:33 PM, shfyzl wrote:

    No mention of BYD

  • Report this Comment On November 19, 2009, at 1:55 PM, ScottRichard wrote:

    tautech

    I enjoy reading and learning from Motley Fool and subscribe to two of their newsletters. However, you need to keep two things in mind:

    1. Motley Fool is a business that makes money by selling advisory services.

    2. In selling its newsletters it uses marketing techniques aimed at eliciting your curiosity and stimulating your desire to purchase. “King of retail” and “Two words Bill Gates doesn’t want you to hear” are representative of the hype. Costco isn’t going to put WalMart out of business and cloud computing isn’t going to put Microsoft out of business.

    I own both Costco and Walmart stock. I believe both stocks offer long-term growth through excellent market segment management. While it is true that Costco could be impacted by the Sam’s Club arm of Walmart, I think it more likely that both companies will thrive; Costco in the warehouse club area and WalMart in the retail store area.

  • Report this Comment On November 20, 2009, at 9:05 AM, sofpan wrote:

    I believe Indian TTM is better than chinese BYD for a long term investment.

  • Report this Comment On November 20, 2009, at 9:06 AM, sofpan wrote:

    I believe TTM is better than BYD.

  • Report this Comment On November 20, 2009, at 12:41 PM, jetmacjoe wrote:

    I agree with exdefanalyst. Costco is well managed company that treats their employees well. I would not own WalMart no matter how well the returns. The town I live in has outright banned Walmart.

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