Berkshire's Most Significant Stock Purchase: Wal-Mart Stores

Berkshire goes back to the well on Wal-Mart.

May 16, 2014 at 10:15AM
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The S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) were down 0.2% and 0.11%, respectively, at 10:15 a.m. EDT. That's enough to send the financial media into fits looking for a tortured explanation, but it's worth keeping in mind that the first two days of the week produced consecutive record highs in the S&P 500; through yesterday's close, the index was down less than half a percentage point on the week. Happily, there are ways to refocus on a longer time horizon, including studying Berkshire Hathaway's (NYSE:BRK-B) report of its stock holdings at the end of the first quarter, which it filed yesterday.

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Yesterday, in the wake of disappointing first-quarter results, I wrote of Wal-Mart (NYSE:WMT): "At a forward price-to-earnings multiple of 13.3, according to Morningstar, the shares look like an adequate value, but no more than that." Perhaps I was wrong, as Wal-Mart is the only major holding of Berkshire Hathaway's to which Warren Buffett (or, perhaps, one or both of the two investment managers he employs, Todd Combs and Ted Weschler) added to in any significant manner in the first quarter, raising Berkshire's stake by 8.6 million shares, or 17%. The average closing price of Wal-Mart during the first quarter was $75.34; on Thursday, the stock closed at $76.83.

Buffett has a history with the stock, one that includes a very painful episode. During the Q&A session at the 2004 Berkshire Hathaway annual meeting, a shareholder inquired about Buffett's worst mistake in recent years. The Berkshire CEO replied that he had hesitated in building a position in Wal-Mart's stock:

I set out to buy $100 million shares of Wal-Mart at a [pre-split price of] $23. We bought a little and it moved up a little and I thought maybe it will come back a bit. That thumbsucking has cost us in the current area of $10 billion.

Knowing Buffett, it was, at least, a learning experience -- albeit a very costly one!

If you wish to find out all the purchases and sales within Berkshire Hathaway's equity portfolio last quarter, my Foolish colleague Jordan Wathen has the list of the 12 stocks Warren Buffett and Berkshire Hathaway just bought and sold.

Incidentally, much is made in the financial media about whether Berkshire's stock purchases and sales are really the product of Warren Buffett or one of the two aforementioned investment managers, on the basis that a stock "tip" from the former is a lot more valuable. However, that may be overstating the difference in investment acumen between the three men -- just ask Buffett himself, who wrote in his latest annual letter to shareholders:

In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd Combs and Ted Weschler handily did so. I must again confess that their investments outperformed mine. (Charlie says I should add "by a lot.") If such humiliating comparisons continue, I'll have no choice but to cease talking about them.

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. 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.

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