Berkshire Hathaway’s latest 13F filing was posted after the close of trading on Tuesday, February 17. This reports shows most positions in publicly traded stocks for Berkshire as well as its subsidiaries as of December 31, 2008. While Warren Buffett is responsible for most capital allocation at Berkshire, it should be noted that Lou Simpson of GEICO handles a sub-set of these holdings. Changes made in Q4 2008 can be determined by comparing the 13F from November 2008 showing a portfolio snapshot as of September 30, 2008 with the 13F just released yesterday.
The most notable change appears to be Johnson & Johnson which was cut by more than half. Whether this is a statement on the specifics of J&J’s business or part of a general move to reduce exposure to traded equities is an open question. I believe that is it more likely that J&J and other positions were trimmed in order to fund highly attractive fixed income purchases that Buffett was able to negotiate during Q4. This started in early Q4 with the Goldman Sachs and General Electric preferred shares paying 10% with added potential upside through warrants attached to the preferreds. It has continued into Q1, most recently with Harley Davidson bonds yielding 15% and Tiffany & Co. bonds yielding 10%.
The Goldman Sachs deal at $5 Billion and the GE deal at $3 Billion were very large in comparison to the more recent transactions. However, the general principle is the same: Buffett is finding ways to secure equity like returns on securities that are more senior in the capital structure and offer greater protections. Johnson & Johnson may be a reasonable value at prices that prevailed in Q4 while Berkshire was selling, but on a risk adjusted basis, it most likely was not more favorable than these senior securities that Buffett has been able to purchase. In these times of limited liquidity, it appears that Buffett is taking full advantage of Berkshire’s strong capital position and flexibility.
Much is being made of Buffett’s sales in recent days and a supposed contradiction with his “Buy American” article written in October. I do not see the contradiction – the new positions still convey confidence in the American economy. However, they provide bond like security for Berkshire shareholders while providing equity like returns. What’s not to like about that?