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Here's Why Warren Buffett Doesn't Tell Us Why Berkshire Buys Stocks

By Matthew Frankel, CFP® – Updated May 7, 2019 at 3:03PM

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Buffett is generally silent about Berkshire Hathaway’s stock portfolio. Here’s why.

In the majority of cases, Berkshire Hathaway (BRK.A 1.68%) (BRK.B 2.17%) and its CEO, Warren Buffett, don't disclose any more information on its stock portfolio than is legally required, such as through its quarterly 13-F filings. And at Berkshire Hathaway's 2019 annual meeting, Buffett openly acknowledged this.

"We're not in the business of explaining why we own a stock," Buffett said.

To be sure, there have been some exceptions. For example, if Buffett feels that the details behind a certain transaction are important for his investors to know, or if he wants to clarify something about a new position, Buffett has discussed more than he had to.

Warren Buffett speaking to the media.

Image source: The Motley Fool.

A recent example is the addition of (AMZN 2.55%) to Berkshire's portfolio, which Buffett disclosed ahead of the company's annual meeting. Investors wouldn't have found out about it otherwise until the first-quarter 13-F is due in mid-May. Buffett may have wanted to give investors a heads-up that it wasn't he who made the investment. One of his stock-pickers did -- either Ted Weschler or Todd Combs pulled the trigger on the tech giant.

A key competitive advantage

Buffett has said before that Berkshire's willingness to invest substantial sums of money in companies it doesn't control through common stocks is one of its biggest competitive advantages. This certainly makes sense -- while other conglomerates and insurance operations often have small amounts of equity securities on their balance sheets, none have anything close to the stock allocation of Berkshire.

Berkshire's market capitalization is approximately $523 billion as I'm writing this, and the company has $114 billion in cash and equivalents. Of the remaining $409 billion in market value, $210 billion or more than half of Berkshire's non-cash assets, is made up of common stocks. So to say that stocks are a major portion of Berkshire's business strategy would be a big understatement.

Because of the enormous size of its stock portfolio, it's easy to understand why Buffett considers all aspects of its stock-picking strategies to be trade secrets. Buffett's response to a question on foreign stocks sums up his thoughts on this point nicely: "We are not about giving business information that is proprietary."

In other words, we don't know exactly why Berkshire owns most of the stocks it does, the exact prices Berkshire paid for its shares, or why the company thought they were good investments at the time they were acquired. And that's exactly how Buffett wants to keep it.

Should you invest alongside Buffett?

Because of its size and track record of success, Berkshire Hathaway's stock portfolio is closely watched by investors. When a new position is announced, shares often shoot upward as many people buy alongside the Oracle of Omaha.

While Berkshire's portfolio moves can be a great way to generate ideas, I wouldn't suggest buying any stock simply because Buffett did. As we've discussed here, you don't know what price Buffett paid, and because we generally don't find out about moves Buffett and his team made until months later, you have no idea whether he would still consider the stock a good investment. In short, while Buffett is undoubtedly one of the best stock-pickers of all time, it's still important to do your own research.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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