So many investors look at Warren Buffett as the all-time greatest long-term investor in history. When you have a net worth of more than $60 billion, there’s no question that he is certainly a successful investor by any and all means.
Buffett is a value investor, and he follows the teachings of his mentor Benjamin Graham and Phil Fisher. He only purchases stocks that have a strong long-term future, and they also must produce high returns and maintain a capital structure that is conservative.
His methods for picking stocks have been extremely successful, and Berkshire Hathaway, his investment firm, is one of the costliest stocks on Wall Street for very good reasons. As of September 2011, shares were about $100,000 each. But since then, they have skyrocketed to over $150,000 as of today. That is a 50% return on your investment in just a year and a half, if you didn’t do the math on your own.
As an investor, it would certainly be smart to follow the lead of a gentleman like Warren Buffett as far as investment philosophy and stock picking are concerned. If you study Warren Buffett’s quarterly 13 F filings, you can find out exactly what he is buying and selling during the prior quarter.
But this is unfortunately old news by the time the 13 F filings are published. So you’re not going to get as good a price on the stocks of Warren Buffett purchases at the time that he either buys or sells. It may turn out better for you. It may not. But buying at the right time and selling at the right time is what truly makes the difference when it comes to profiting in this business. I’d also like to mention that just because Warren Buffett buys or sells a stock, it doesn’t reflect the true value of a company one way or another.
So you can use the 13 F filings as a way to guide yourself, but don’t look at them as an all-encompassing authority. As an example, if you recognize that Buffett is either buying or selling a certain company, make a note of it and look deeper into the company yourself. Determine if you feel that it is either the time to buy or sell.
When going over Warren Buffett’s latest 13 F filing, there were two particular companies that really stood out because he sold off shares during the third quarter of 2012. Both of these companies have performed solidly during this time. This should prove to you that just because a professional like Warren Buffett is selling the stock, does not mean that the company is no longer worthy to buy or hold.
Let’s take a much closer look at the two companies that Warren Buffett sold recently, even though their fundamentals are very solid…
Johnson & Johnson
Up until very recently, Johnson & Johnson was actually one of Warren Buffett’s largest holdings. But during 2011, Johnson & Johnson acquired Sythes, a Swiss medical device maker in a one third cash, two thirds stock deal. Buffett was not a big fan of this purchase, because it diluted the value of the shares of Johnson & Johnson.
But Buffett didn’t immediately overreact. He waited for the opportune time, and during the third quarter of 2012, he sold off 95% of his Johnson & Johnson holding. His stake in the company went from over 10 million shares for less than 500,000. The company is actually now one of Warren Buffett’s smallest holdings overall.
What has the stock done since then? Well, the shares have actually soared much higher since then. They were $68 per share in November of 2012, and as of today they are currently worth $76 a share. So it’s fairly obvious that the Warren Buffett selloff didn’t have any negative effect in the stock at all. The investors who purchased Warren Buffett’s shares have made around a 12% return on their investment in such a short period of time.
Let’s not forget that Johnson & Johnson has a 50 year track record of paying dividends, and the $3 billion they have in cash shows us that it will be very easy for them to maintain their dividend payments.
Procter & Gamble
During October of 2012, Buffett spoke out and mentioned that he was concerned about Procter & Gamble’s valuation. At the time, he cut back his holding by around 7 million shares throughout the third quarter of 2012. But he still owns about 53 million shares of the company, so he is obviously not bearish on this stock completely.
If you bought Procter & Gamble during November of 2012, you are making about 15% on your shares presently worth 77 dollars.
The more interesting story revolving around this company is that famed activist short seller Bill Ackman has purchased over 4 million shares of Procter & Gamble during the third quarter of 2012. His stake has now increased by more than 34 million shares, which he owns through Pershing Square Capital Management, his hedge fund.
Bill Ackman has been pressuring this company to increase their profitability, and throughout the fourth quarter of 2012, the company’s year-over-year earnings have risen 12% to $1.22 per share. Additionally, Procter & Gamble has increased their 2013 earnings guidance from $3.97 per share to $4.07 per share. This is between a 3% to 6% increase from the 2012 earnings.
Please consider that following the lead of a professional investor will not guarantee you any success. You must do your due diligence while choosing investments. It doesn’t matter which investor is buying or selling it.
If you plan on taking action on an investment, it’s not a bad idea to follow the moves of a professional investor like Warren Buffett. As a matter of fact, it’s a good way to start making your stock picks. Just be sure to pay attention to what the professionals are buying, but you have to do your own research to figure out if this investment makes sense for you. You do not necessarily know Warren Buffett’s investment strategy, and it may not fit in with your own wants and needs.