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The Most Important Things to Remember About the Stocks Warren Buffett Buys

By Patrick Morris – Feb 23, 2014 at 1:30PM

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Much has been made about the Berkshire Hathaway addition of General Electric, but it turns out the additions to USG and DaVita Healthcare Partners were worth more to Warren Buffett.

The world now knows what stocks Warren Buffett and Berkshire Hathaway (BRK.A 0.35%)(BRK.B 0.40%) were buying in the fourth quarter, but that's not the whole story. 

Perhaps the most attention-grabbing thing was the massive increase in Berkshire's position of General Electric (GE 0.31%). Buffett and team increased the holding by almost 17 times, adding almost 10 million shares, which is seemingly a staggering vote of confidence in favor of the company.

However, a look at the percentage increase can be distinctly misleading and present a broad misunderstanding of what companies Buffett and his lieutenants were actually most active in buying and selling during the quarter.

As you can see in the chart below, while the additional shares of GE were by far the largest percentage gain, on a raw dollar basis, it was actually only fourth largest:


Source: Company SEC Filings. 

In no way should this discount the significance of the additional purchase of GE, as a $280 million investment is not something to be shrugged off. But the addition to the positions of DaVita Healthcare Partners (DVA 2.25%) and USG Corp (USG) were actually worth more.

First glance can be deceiving
You also may be wondering why the additions of USG and DaVita are noteworthy, but the $2.2 billion addition of Goldman Sachs is not. The Goldman addition was worth roughly 1.5 times more than the other eight companies combined.

Source: Coca-Cola.

However, the position in Goldman is actually not a new purchase at all, but instead a conversion of his profit from his existing investment in Goldman Sachs preferred shares as well as warrants to buy $5 billion more, which was made during the financial crisis in 2008. 

The news Buffett would be taking his profit on that deal in the form of the common stock of Goldman Sachs was first revealed more than four and a half months ago at the end of September. While Buffett did take his profit in common stock and not in cash; however, it is hard to classify the addition of Goldman Sachs as a huge bullish sign for the Wall Street giant.

There is always much to learn from Warren Buffett's decisions to buy and sell shares of companies Berkshire Hathaway owns, but it is critical to see a simple glance at the holdings does not always paint the entire picture.

Patrick Morris owns shares of Berkshire Hathaway and General Electric Company. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and General Electric Company. 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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Stocks Mentioned

General Electric Stock Quote
General Electric
GE
$88.14 (0.31%) $0.27
Berkshire Hathaway (A shares) Stock Quote
Berkshire Hathaway (A shares)
BRK.A
$478,675.55 (0.35%) $1,655.56
Berkshire Hathaway (B shares) Stock Quote
Berkshire Hathaway (B shares)
BRK.B
$317.43 (0.40%) $1.25
USG Corporation Stock Quote
USG Corporation
USG
DaVita Stock Quote
DaVita
DVA
$73.92 (2.25%) $1.63
Goldman Sachs Stock Quote
Goldman Sachs
GS
$388.86 (0.68%) $2.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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