Don't let Warren Buffett's folksy façade fool you. He's as shrewd an investor as any, and there's plenty he's not saying.
The billionaire manager of Berkshire Hathaway is one of the most closely watched investors in the world today. The problem is, he doesn't always want everyone knowing what he's doing.
Berkshire has petitioned the Securities and Exchange Commission to keep confidential or delay its disclosure of securities holdings on numerous occasions throughout the years and with varying degrees of success. In 2003, it lost a bid to delay the disclosure of certain stock holdings, arguing that Buffett's reputation for successful stock selection would "adversely affect" Berkshire's acquisition program. While the SEC acknowledged the issue of Buffett copycat investors, it concluded that Berkshire disclosures would not "inevitably lead to market disruption so severe as to cause substantial competitive hard to Berkshire's competitive position in all cases."
In other words, too bad, so sad, Mr. Buffett.
The Securities and Exchange Act of 1934 requires all big institutional investors -- defined as those with over $100 million under management -- to disclose their holdings each quarter, and Buffett isn't the only manager to try to get around rule from time to time. In 2011, the SEC told The New York Times it receives about 60 requests each quarter to keep investments confidential.
A paper titled "Do Institutional Investors Have an Ace up Their Sleeves?" delves into the issue of confidential filings of portfolio holdings and finds that not only is the practice of keeping investments under wraps common among big-name investors but it also may give them an advantage.
Confidential holdings are more likely to be associated with information-sensitive events, such asmergers and acquisitions, and include stocks subjected to greater information asymmetry. What's more, confidential holdings demonstrate better risk-adjusted performance for up to four months after quarter-end, meaning private information may be involved.
"Investors are reluctant to reveal their positions at the quarter-end when they are in the process of accumulating or liquidating their positions, especially when the potential price impact is high," said Wei Jiang, professor of free and competitive enterprise at the Columbia Business School and one of the paper's authors, in an email to TheStreet. "The confidential filing allows them to delay disclosure until they have exhausted their investment idea or completed disposition. Positions 'hidden' in confidential holdings tend to outperform the market in a 12-month horizon, indicating the information value of these relatively small number of positions."
Buffett hasn't always gotten his way in keeping his portfolio under wraps. Berkshire has lost a fair amount of such bids, including in 2000, 2001 and 2004. But it has won on a number of occasions as well.
Here are five investments that the Oracle of Omaha has kept secret, at least for a while. Berkshire Hathaway representatives did not return request for comment.
Buffett accumulated a 4.9 million-share stake in the fast food giant in 1994. He didn't tell anyone until 1996, when an unsealed SEC document revealed he had acquired the position more than a year prior. By the time the investment was revealed, The Associated Pressestimated Berkshire had already made a gain of $114.7 million.
Bloomberguncovered a 1993 letter from Berkshire vice president Marc Hamburg explaining the company's rationale for keeping its investments confidential. "Berkshire believes that good investment ideas are rare, valuable, and subject to appropriation (if not protected) just as are good product or business acquisition ideas," he wrote.
Wells Fargo (WFC) - Get Report has been one of Buffett's biggest investments for decades, so when in 1997 it appeared he had cashed out of the financial giant, it really spooked the market -- so much so that the SEC was forced to re-examine its policies.
In August 1997, Berkshire Hathaway omitted its Wells Fargo holdings in an SEC filing, leading to many reports that it had sold off its stake. Wells Fargo's market value dropped by $1.3 billion within an hour, and a little after 2:30 in the afternoon, the New York Stock Exchange halted trading. Wells Fargo then announced what Berkshire had declined to disclose: It remained a substantial shareholder of the company and had simply shifted its holdings to a confidential filing.
Berkshire had done the same with General Dynamics and Torchmark, which as a result experienced similarly frenzied trading.
The chaotic events caused the SEC to tighten its rules for accepting confidentiality applications and restricting its conditions in 1998.
In November 2011, Buffett disclosed in an SEC filing that Berkshire Hathaway had bought a 5.5% stake in IBM, marking his first major technology investment. The kicker: He had been purchasing the stock for about eight months and was keeping it under wraps in previous filings, instead adding in a footnote warning of the omission of "confidential information."
When news of the investment broke, SEC spokesman John Nestor toldTimes columnist Andrew Ross Sorkin that the agency tried "to balance the benefits of transparency of how large managers invest with the need to temporarily protect the legitimate confidentiality interests of managers in limited circumstances."
Sorkin also shed light on Buffett's take on piggybacking and keeping investment ideas secret, citing comments from a separate interview. "How would you feel if you had to announce every story idea you had?" Buffett had asked him.
In November 2014, the media were abuzz with news that Buffett appeared to have dumped his stake in agriculture and forestry equipment manufacturer Deere (DE) - Get Report , unloading all of the nearly 4 million shares reported in the previous quarter and closing out a position he had initiated in 2012. What many missed was that little note in his 13F filing warning that "confidential information" had been left out of the public report.
A few months later, we found out what.
In February, Buffett's holdings disclosure revealed he had actually not sold a share of Deere. Instead, he had bought it, upping his stake to more than 17 million shares -- an approximately $1.5 billion omission.
Buffett pulled yet another fast one on piggybackers in August 2015, this time with energy company Phillips 66 (PSX) - Get Report . His 13F filing, corresponding to holdings as of June 30, listed no PSX shares -- again including the confidentiality clause and again leading to reports of a sale.
Just a few weeks later in September, Phillips 66 reappeared among Buffett's holdings in an amended 13F filing indicating that Berkshire hadn't sold the stock after all. Instead, he had added to his position and holds 29.7 million shares valued at $2.4 billion as of the end of the second quarter.
He talked up the buy and his take on it in an interview with CNBC. "Phillips 66 is not a pure refiner -- they've got a big chemicals division, a midstream business, so we're buying it as a refiner [and] we're certainly not buying it as an integrated oil company -- we're buying it because we like the company and we like the management," he said.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.