Is Buffett Selling America?

"Buy American. I am."

That was the title of Warren Buffett's Oct. 16 New York Times op-ed, which described why he and his personal loot were diving headfirst into American stocks. "If prices keep looking attractive," Buffett said, "my non-Berkshire net worth will soon be 100 percent in United States equities."

So Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) drew a few puzzled stares when it reported its quarterly 13-F filing yesterday, disclosing that its biggest common-stock moves in the past quarter revolved around selling American equities.

Berkshire slashed its positions in Procter & Gamble (NYSE: PG  ) , Johnson & Johnson (NYSE: JNJ  ) , ConocoPhillips (NYSE: COP  ) , US Bancorp (NYSE: USB  ) , UnitedHealth (NYSE: UNH  ) , and a handful of others. There were some big purchases -- including nearly 20 million shares of Constellation Energy -- but the widespread selling during a quarter when stocks traded at their lowest levels in years left some questioning whether Buffett was writing positively with one hand while quietly selling with the other.

Not exactly
At first glace, the puzzlement seems valid, but let's remember a few important details:

  • Just because Buffett's selling doesn't mean he's necessarily bearish. It simply means he's found better use of the capital elsewhere.
  • Where might he have found better use of the capital? In the credit market, where he spent billions of dollars scooping up debt in iconic American companies.

Those deals -- such as Berkshire's recent debt purchases in Tiffany and Harley-Davidson -- are often offered only to high-profile investors like Buffett. One deal last fall, to purchase Goldman Sachs (NYSE: GS  ) preferred stock yielding 10% with warrants, was money the bank probably didn't even need. It was more or less a Goldman Sachs advertisement to the market: "Hey, look at us, Berkshire thinks we're legitimate, and you should, too." Buffett has power that individual investors don't, even beyond his bank account.

Just because Berkshire's been selling the common shares that average Joes consider the backbone of the market doesn't mean that Buffett isn't putting his money where his mouth is. Most of the debt deals he's scored in recent months come with double-digit yields and significant equity upsides -- far better returns than he could hope to receive holding common stocks.

For further Foolishness:

Fool contributor Morgan Housel owns shares in Berkshire Hathaway and Procter & Gamble. US Bancorp and Johnson & Johnson are Motley Fool Income Investor picks. UnitedHealth and Berkshire Hathaway are Motley Fool Inside Value selections, as well as Motley Fool Stock Advisor recommendations. The Fool owns shares of UnitedHealth Group, Berkshire Hathaway, and Procter & Gamble. The Motley Fool is investors writing for investors.


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  • Report this Comment On February 18, 2009, at 6:01 PM, wxmanremy wrote:

    This is a great article - one that EVERYONE who thinks that Buffett has all of the sudden lost his mind after 60 years in the market should read. He was just loading up on JNJ about 2 years ago, do you really think he's giving up on them already? That is not his time frame, or his style. He is simply putting his capital to use where he sees better growth potential.

  • Report this Comment On February 23, 2009, at 4:38 PM, weiwentg wrote:

    In the approximate timeframe that he trimmed his positions in JNJ, PG and USB, those stocks were around their 52-week highs. I think he was selling cheap stocks to raise the cash to buy cheaper ones. I sold those three stocks for that same reason. Unfortunately for me, I reinvested that cash in the market much earlier than he did. Oh well.

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