Warren Buffett’s latest portfolio moves: the 4Q14 13-f

Investment managers subject to SEC regulation (meaning basically everyone other than hedge funds) must file a quarterly report with the agency detailing significant changes in their portfolios.  It’s called a 13-f.  Today Berkshire Hathaway filed its 13-f for 4Q14.  I can’t find it yet on the Edgar website, but there has been plenty of media coverage.

Mr. Buffett has built up his media and industrial holdings, as well as adding to his IBM.  The more interesting aspect of the report is that it shows him selling off major energy holdings–ExxonMobil, which he had acquired about two years ago, and ConocoPhillips, which he had been selling for some time.  Neither has worked out well.

There’s also a smaller sale of shares in oilfield services firm National Oilwell Varco and a buy of tar sands miner Suncor–both presumably moves made by one of the two prospective heirs working as portfolio managers at the firm (whose portfolios are much smaller than Buffett’s.  Buffett has told investors to figure smaller buys and sells are theirs.)

Three observations:

–the Buffett moves would have been exciting–maybe even daring–in 1980.  Today, they seem more like changing exhibits in a museum.

–if I were interested in Energy and thought it more likely that oil prices would rise than fall, I’d be selling XOM, too.  After all, it’s one of the lowest beta (that is, least sensitive to oil price changes) members of the sector.

But I’d be buying shale oil and tar sands companies that have solid operations and that have been trampled on Wall Street in the rush to the door of the past half-year or so.  That doesn’t appear to be Mr. Buffett’s strategy, however.  His idea seems to be to cut his losses and shift to areas like Consumer discretionary. (A more aggressive stance would be to increase energy holdings by buying the high beta stocks now, with the intention of paring back later by selling things like XOM as prices begin to rise.)  NOTE:  I’m not recommending that anyone actually do this stuff.  I’m just commenting on what the holdings changes imply about what Mr. Buffett’s strategy must be.

–early in my career, I interviewed for a job (which I didn’t get) with a CIO who was building a research department for a new venture.  I was a candidate because I was, at the time, an expert on natural resources.   The CIO said the thought there were three key positions any research department must fill:  technology, finance and natural resources.  All require specialized knowledge.    I’d toss healthcare into the ring, as well.  I’d also observe that stock performance in these more technical areas is influenced much less by the companies’ financial statements than is the case with standard industrial or consumer names.

Mr. Buffett is an expert on financials–he runs a gigantic insurance company, after all.  On tech and resources, not so much, in my opinion.  Financials are the second-largest sector in the S&P 500, making up 16% of the total.  Tech makes up 19.5%; Energy is 8.3%; Healthcare 14.9%.  The latter three total 42.7% of the index.  As a portfolio manager, it’s hard enough to beat the index in the first place.  Being weak in two-fifths of it makes the task even harder.

4 responses

  1. Thoughts on why natural gas is in the same downturn as oil? They seem different from end-use (power generation vs. transportation), less tied into international events, although obviously tied in with cheap financing.

    If anything, I’d think lower drilling costs would help natural gas in the long run.

    • Natural gas is a more complicated topic. For a long time it has been much cheaper than oil in the US on a heating equivalent basis. That’s because it’s expensive to deliver to potential users if there’s no pipeline. In fact, the first wells in shale formations were in search of gas. In a sense, wildcatters were too successful because oversupply developed, causing them to switch to drilling for oil–where they still had a chance to make profits. In the US at least, both are now in oversupply. That has put downward pressure on both prices.

  2. Thanks.

    Your point about specialized knowledge is useful as well. As an outsider, I agree that you can do research on a company. Researching an industry is what feels hard — and getting a feeling on where one company fits into an industry.

  3. Investing is a craft skill …like playing baseball. It takes time.

    Having said that, there’s a ton of industry information available online from trade organizations and sometimes from the government.

    Also, Merrill Edge, the discount brokerage part of Merrill Lynch, gives clients access to all of Merrill’s institutional research–including what are called basic reports on industries. The ones I’ve read appear to be thorough and factually correct. Sometimes, I don’t agree with the conclusions–like that Tesla is going to $70–but the facts and the issues all seem to be there.

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