OMAHA, Neb. (
) - On Tuesday afternoon, the fourth-quarter trading strategies of Warren Buffett and his investment company
While there were many notable buys and sells among the
quarterly Berkshire Hathaway portfolio changes, perhaps most notable was the level to which
Warren Buffett, Mr. Buy and Hold, was a net seller of stocks in the fourth quarter.
There are important caveats to any discussion of the fourth quarter net selling by Buffett as an atypically high level of trading from the world's most famous investor, famous for, among other reasons, saying that the best holding time for a stock is "forever."
The fourth-quarter trading activity by Berkshire Hathaway was a "see-ya" to many stocks as opposed to an embrace from the Oracle of Omaha lasting forever -- still, if you consider that Berkshire is folding formerly public Burlington Northern into its stock as an operating subsidiary, the 340 million outstanding shares of Burlington throw off a simple equation looking at the stocks that Buffett sold in the fourth quarter.
What's more, Buffett had to divest two railroad stakes in the fourth quarter as part of its purchase of Burlington --
. In all, Berkshire Hathaway sold more than 11 million shares of the two railroads.
It is also interesting to note that even though it was a net sell quarter for Berkshire Hathaway, Morningstar analyst Bill Bergman noted that the concentration of the Top Ten public stocks held by Buffett actually increased in the fourth quarter of 2009.
"There was significantly more activity in the last quarter, Mr. Buy and Hold clearly had a lot going on, but one main takeaway from the quarter is that for all the increased activity, this is still an amazingly concentrated portfolio," Bergman said. The Top Ten holdings of Berkshire Hathaway increased to represent 87% of the portfolio's market cap, up from 85% earlier in 2009. "That figure had been rising slowly throughout 2009," Bergman said.
It is a statistic that dovetails with a comment made by a Berkshire Hathaway investor reflecting on the fourth-quarter activity in a
article on Wednesday -- with the investor noting that Buffett seems to be tailoring his selling activity to focus the portfolio on stocks that, like Burlington Northern, are fundamentally linked to his bet on the U.S. economy.
Leaving aside the Burlington acquisition, just how extensive was Buffett's selling in the fourth quarter of 2009 in comparison to the previous quarters of 2009?
Morningstar's Bergman estimates that Berkshire Hathaway bought $500 million worth of stock in the fourth quarter, while selling $2.5 billion worth of public securities.
The numbers of Berkshire Hathaway buys and sells as measured by sheer number of stocks also was significantly higher in the fourth quarter. In the first quarter of 2009, Buffett sold four stocks, while in the second and third quarters, there was an equal level of seven stocks in which Berkshire Hathaway reduced its positions, according to Morningstar data.
In the fourth quarter, Berkshire Hathaway sold 13 stocks. What's more, Berkshire did not add to positions at a level that offset the higher level of selling.
In the first quarter and third quarter of 2009, Berkshire bought six stocks. In the second quarter of 2009, Berkshire bought two stocks. In the fourth quarter, while 13 stocks were sold, only five stocks were purchased.
"Whether you look at the number of shares sold or the market cap of the shares sold by Berkshire Hathaway in the fourth quarter, both were much higher levels than previously," Morningstar's Bergman said.
By comparison, over the first nine months of 2009, Berkshire Hathaway purchased $3.2 billion and sold $2.1 billion worth of public shares.
However, echoing the comments made by Berkshire investors, Bergman noted that one can't just look at the Berkshire quarterly holdings filing and deduce that the selling activity means Buffett turned bearish.
"Buffett just made an all-in bet on the U.S. economy, and that highlights how the Burlington acquisition and the investment strategy are part and parcel of a broader phenomenon. Just reading the public securities changes quarter to quarter is only half the picture," the Morningstar analyst said.
Among the big selling quarter for Buffett, some of the stocks were ones that Berkshire Hathaway had already begun selling earlier in 2009, including
, and managed care providers
The more notable Buffett stock sales were the ones that represented new turns against stocks. These included
Ultimately, the quarterly portfolio filing provides an incomplete view of the cash flow situation of Berkshire Hathaway, particularly at a time when it is financing the acquisition of Burlington Northern.
Morningstar's Bergman said that an investor could speculate that Berkshire's usually strong operating cash flow could have been lower than usual due to less aggressive insurance underwriting in 2009, which could create a cash flow headwind -- as opposed to underwriting as a usual cash tailwind. What's more, the amount of net selling by Berkshire Hathaway in the fourth quarter was a material number, in terms of quarter-to-quarter operating cash flow.
However, the quarterly filing does not take into account the fixed maturities that Berkshire Hathaway is buying throughout the year --
said on Thursday that
it plans in 2011 to pay back Buffett a 3 billion franc loan it received from Berkshire Hathaway in 2009.
The Morningstar analyst advises investors to prepare for the Berkshire Hathaway earnings at the end of February, in order to form a more complete view of the Berkshire net selling of public stocks in the fourth quarter.
"You can't just take the filing and say Buffett was a net seller. It is part of the overall puzzle, but far from the last piece," Bergman said.
-- Reported by Eric Rosenbaum in New York.
Follow TheStreet.com on
and become a fan on
Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.