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, 2013||As 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.
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.