How Warren Buffett Amassed 10 Million Shares of General Electric Company

Berkshire's position in General Electric ballooned, but Buffett's stance on the American industrial icon is a mixed bag.

Feb 18, 2014 at 10:15AM

When Warren Buffett loads up on shares of a company, it's a big deal. His long-term track record of outperformance speaks for itself. Further, his research is so thorough, he claims a five-year market closure wouldn't shake his investing confidence one bit.

As a result, the news that Buffett's holding company, Berkshire Hathaway (NYSE:BRK-B), acquired 10 million shares of General Electric (NYSE:GE) caught the eye of several financial media outlets over the weekend.

When revealed in Berkshire's 13-F filing, the $300 million stake took some investors by surprise. Is Buffett really this impressed by GE? Well, as is usually the case, the devil's in the details.

Berkshire holds roughly 10.6 million shares in General Electric as of Dec. 31, 2013, which amounts to nearly 18 times the size of Berkshire's stake in the company as of Sept. 30 of last year. That's a hefty increase, even if it is chump change relative to Berkshire's $400 billion in assets.

 As of Sept. 30, 2013As of Dec. 31, 2013
Berkshire's GE common stock $14.06 million  588,900 shares $296.71 million 10,585,502 shares

At a glance, it's quite clear that Berkshire's holding expanded significantly, but the Oracle of Omaha didn't just accumulate shares of "the General" during a 2013 holiday shopping spree. Instead, Berkshire amassed stock in the industrial conglomerate through the exercise of a five-year-old warrant in October. Berkshire's current stake in GE, then, is a relic of the Oracle's decision to backstop the industrial conglomerate during the height of the credit crisis. 

That decision dates back to 2008, when Berkshire stepped in and acquired $3 billion to aid an ailing General Electric. Despite GE's troublesome banking unit, Buffett endorsed the manufacturer as "the symbol" of American business at a precarious moment in the company's life.

Ultimately, GE weathered the storm, and a half-decade later, the Oracle exited the position when Berkshire opted for a "net share settlement." The settlement, properly exercised, resulted in the accumulation of approximately $260 million in shares. Considering the $3 billion investment, it was a relatively small payday for Buffett, especially compared to similar warrants redeemed with Goldman Sachs and Bank of America.

Nevertheless, a month and a half after redeeming the warrants, the shares of General Electric remained on Berkshire's books, which is why the increased holding caught the attention of the financial press last week. Buffett, as the chairman CEO of Berkshire, could have opted to sell the General Electric shares immediately at a profit, but some outlets have speculated that the Oracle is impressed with GE's current portfolio of businesses. Whether Berkshire's in this for the long haul is up for debate. Interestingly, however, the revelation comes on the heels of insider buying at GE, including a purchase by CEO Jeff Immelt in January.

Foolish takeaway
For long-term Foolish investors, evaluating Berkshire's 13-F can reveal juicy nuggets about Buffett's latest transactions and his overall market or industry sentiment. But understanding Buffett's stance on General Electric is not so cut and dry.

On one hand, GE resembles a classic Buffett stock, as my colleague Patrick Morris points out quite convincingly. On the other, if Buffett wanted a huge stake in General Electric, he could just as easily have bypassed the net share settlement and held onto a $3 billion-plus position. Unless Berkshire decides to snatch up shares in the near future, we can't be convinced of Buffett's perception of the company one way or another. From my perspective, Buffett's holding today is the product of a special situation, a unique position reserved just for the Oracle.

Engineers Evaluate Ges Pipeline Products

Engineers evaluate a GE pipeline product. Source: General Electric. 

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Isaac Pino, CPA, owns shares of General Electric Company. The Motley Fool recommends Bank of America, Berkshire Hathaway, and Goldman Sachs. The Motley Fool owns shares of Bank of America, Berkshire Hathaway, and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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