Berkshire Buys GM Before Plunge as Backups Pick Stocks

Berkshire Buys GM Before Plunge as Backups Pick Stocks
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Photographer: Tomohiro Ohsumi/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc. acquired its largest stake in General Motors Co. before the automaker slumped 16 percent, as the billionaire chairman hands more responsibility to deputy stock pickers.

Berkshire accumulated about 8.47 million shares of GM through Feb. 3 at an average price of $24.35, according to National Association of Insurance Commissioners data compiled by Bloomberg. The automaker closed at $20.54 yesterday in New York. Omaha, Nebraska-based Berkshire’s full stake was reported in a separate regulatory filing in May that didn’t disclose the purchase price or date.

Buffett, the world’s third-richest person, built a reputation for investing in stocks below intrinsic values and riding out market swings until prices rose. That strategy has helped Berkshire amass the largest holdings in companies including Coca-Cola Co. and American Express Co.

“It’s probably an advantage of Berkshire’s model that they don’t have to” focus on short-term results, Meyer Shields, an analyst at Stifel Nicolaus & Co., said in a phone interview. “The long-term track record of equities is pretty solid. So if you get yourself in that position, where you can endure a lot more fluctuation than almost any other investment company, then you should be able to benefit.”

Buffett, 81, has been preparing Berkshire for his eventual departure, in part by hiring former hedge-fund managers Ted Weschler and Todd Combs to help oversee a portion of the firm’s $89.1 billion stock portfolio. Buffett has said he makes Berkshire’s larger wagers, while the back-up stock pickers are responsible for smaller bets. Each oversees $2.75 billion, Buffett said May 5 at the company’s annual meeting.

One Quarter

“Combs, Weschler and Buffett are peas in a pod,” Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett,” said in an e-mail. “I hardly think they worry about one quarter’s performance of one stock.”

Berkshire bought another 1.53 million GM shares through Feb. 14 for an average of $25.46 each, the insurance filings show. Taken together, the holdings had lost about $40 million in value through yesterday, assuming no shares were sold. Most of Berkshire’s stock portfolio is at insurance units that have their investments tracked by the NAIC. Buffett didn’t respond to a request for comment sent to an assistant.

GM’s shares fell 45 percent last year, even as the company regained the title of world’s largest automaker and earned a record annual profit of $9.19 billion. The U.S. government still owns a 32 percent stake in the Detroit-based firm after supporting its 2009 bankruptcy and restructuring.

European Crisis

Dan Akerson, GM’s chief executive officer, has said the shares have been pressured by troubles in Europe, which is struggling with a debt crisis. GM has lost $16.4 billion on the continent since 1999. A plan to break even last year was on track until November when the company pulled back its forecast as the European outlook worsened.

“For the whole sector, Europe is just going to keep weighing the stocks down at least for the rest of this year,” David Whiston, an equity analyst with Morningstar Inc. in Chicago, said in a phone interview.

GM’s slump may provide Berkshire with another opportunity to buy shares in a company that could benefit as U.S. consumers replace aging cars, said Tom Lewandowski, an analyst at Edward Jones & Co. GM sales climbed 16 percent in June, beating the average estimate of a 7.6 percent gain according to 11 analysts surveyed by Bloomberg. Shares surged 5.6 percent on July 3, when the data were released.

More Shares

“If anything, I would put money on them buying more of it if they have conviction in the investment,” Lewandowski, who advises clients to buy Berkshire stock, said in a phone interview. “It’s not going to be cause for concern.”

Berkshire also added to its holdings of DaVita Inc. in the first quarter, buying 3.32 million shares at an average price of $84.04. The Denver-based provider of kidney dialysis care closed at $97.57 yesterday, delivering Buffett’s firm a $44.9 million paper profit if the shares are still held.

DaVita agreed on May 21 to acquire HealthCare Partners, which manages medical groups and physician networks under a system that rewards lowering costs. The acquisition will give DaVita an opportunity to profit from a growing part of the health-care market, Leerink Swann & Co. analysts led by Jason Gurda wrote in a June 8 note to clients.

HCP’s Model

“We like HCP’s model, which unlike many other companies in health care, doesn’t depend on using local market leverage to drive pricing higher,” they wrote.

Peter Grauer, chairman of Bloomberg LP, the parent company of Bloomberg News, has served on DaVita’s board of directors since 1994.

Berkshire’s bets on Wal-Mart Stores Inc., the world’s largest retailer, have also gained if they’re still intact. Buffett’s firm added 7.67 million shares in the first quarter. The largest portion was accumulated at an average price of $59.92 through March 29, according to NAIC data.

Wal-Mart, based in Bentonville, Arkansas, climbed to a record close of $71.08 yesterday after slumping earlier this year amid a bribery probe at the company’s Mexico operations. Buffett’s stake, including shares acquired previously, is valued at more than $3 billion.

“I don’t think the earning power of Wal-Mart five years from now will be materially affected by the outcome of this situation,” Buffett said at the meeting on May 5.

Other stock picks that increased from their purchase price include 1.3 million shares of Liberty Media Corp. and 2.65 million shares of DirecTV. The Liberty Media shares were purchased at an average price of $83.03 and closed at $91.27 yesterday, while the DirecTV stake was accumulated at an average price of $44.48 and closed yesterday at $49.24.

The purchase dates and prices, detailed in NAIC statements, aren’t included in quarterly filings to the Securities and Exchange Commission. When stakes are built across multiple days, the NAIC allows companies to consolidate acquisitions under the date of the last purchase.

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