Here's What Warren Buffett Bought and Sold Last Quarter

At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading money managers are buying and selling. And managers who aren't always in lockstep with the broader market can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.

Q3 2011 update
Warren Buffett is a familiar name to anyone who follows the investment world, with his Berkshire Hathaway (NYSE: BRK-B  ) company increasing its per-share book value by an annual average of 20% between 1965 and 2010, leaving the S&P 500 in the dust with its 9%. Clearly, the guy has a knack for making smart investments. With that in mind, let's take a look at his company's recent investment activity, noting that he heads a large corporation, and not a hedge fund or mutual fund. While he owns many businesses in their entirety, from Dairy Queen to GEICO to Fruit of the Loom, he also has tens of billions of dollars invested in the stock of other companies.

Why should you look at Berkshire Hathaway's moves? Well, according to AlphaClone's back-test simulation, anyone who invested in Berkshire Hathaway's 10 largest long positions (in equal portions) at the time they were disclosed publicly each quarter would have gained 161% since 2000, versus ... uh ... 2% for the S&P 500 (including dividends) as of Nov. 21.

The total market value of Berkshire Hathaway's disclosed equity holdings as of Sept. 30 -- the latest quarter for which data is available -- was $59.1 billion across 33 holdings. As Buffett is famous for his patience and commitment to his investments, and for not trading terribly often, it's not surprising that many of Berkshire's main holdings remain unchanged.

Berkshire Hathaway's 10 largest positions and associated changes in number of shares held as of Sept. 30 were:

Coca-Cola -- unchanged.
IBM (NYSE: IBM  ) -- new.
Wells Fargo -- increased 2.6%.
American Express -- unchanged.
Procter & Gamble (NYSE: PG  )  -- unchanged.
Kraft Foods -- reduced 9.8%.
Johnson & Johnson -- reduced 12.2%.
Wal-Mart -- unchanged.
Conoco Philips (NYSE: COP  )  -- unchanged.
US Bancorp (NYSE: USB  )  -- unchanged.

The rather big news coming out of this quarter's report is the revelation of a huge position in IBM, worth more than $10 billion. It's especially startling given Buffett's long aversion to most high-tech stocks, as he has found them outside his circle of competence. But this is Big Blue-chip IBM, with a long history of strong performance and a detailed growth plan for its future.

During the quarter, Berkshire Hathaway also increased its position in Dollar General and M&T Bank.

Selected Q3 2011 commentary
According to AlphaClone, Berkshire Hathaway has about 36% of its stock portfolio in consumer non-cyclicals, down a bit from 42% last quarter. His stake in financials dropped from 39% to 30%, while services surged from 8% to 24%. These are big moves for a company that generally doesn't change too quickly.

Here's where the company has been winning and losing and making new bets:

Recent winner
Doing well for Berkshire in the third quarter was MasterCard, gaining 5% when the S&P 500 sank by about 14%. In its third quarter, MasterCard saw its number of transactions grow, as well as the size of its transactions. International revenue advanced by 20%. The company has a three-star rating (out of five) at Motley Fool CAPS.

Recent loser
Wallboard maker USG (NYSE: USG  ) didn't do so well, plunging by more than 50% as it struggles amid a very weak housing market. Its fortunes should eventually change course, but no one knows when housing will really start recovering. The company has a three-star rating in Motley Fool CAPS.

New bets
In addition to IBM, Berkshire also started significant positions in Intel (Nasdaq: INTC  ) , Visa, CVS Caremark, DirecTV, and General Dynamics. Intel makes a lot of sense, as it is in many ways a blue chip today, sporting a hefty 3.5% dividend and an appealing low valuation. Its outsized spending on R&D bodes well for its future. The company has a five-star rating at Motley Fool CAPS.

Remember, too, that some of these portfolio changes reflect decisions not by Buffett, but by the folks he's tapped to manage some of the company's money. (Meet Ted Weschler and Todd Combs, possible successors to Buffett.)

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing, and 13-F forms can be great places to find intriguing candidates for our portfolios.

Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.

IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS

Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance, and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.

Longtime Fool contributor Selena Maranjian owns shares of Procter & Gamble, Berkshire Hathaway, Intel, Wal-Mart, Johnson & Johnson, Coca-Cola, and American Express, but she holds no other position in any company mentioned. Check out her holdings and a short bio. The Motley Fool owns shares of Intel, IBM, Wal-Mart, MasterCard, Coca-Cola, Johnson & Johnson, Berkshire Hathaway, General Dynamics, and Wells Fargo; has bought calls on Intel; and has created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Intel, Procter & Gamble, Berkshire Hathaway, Johnson & Johnson, Visa, Coca-Cola, and Wal-Mart; creating diagonal call positions on Johnson & Johnson and Wal-Mart; creating a bull call spread position on Intel; and writing a covered strangle position on American Express. Try any of our Foolish newsletter services free for 30 days. 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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