Warren Buffett's $24 Billion Bet on the U.S. Stock Market

By: Money_Morning

Kerri Shannon writes: Investing legend Warren Buffett must be feeling good about the U.S. market and economic outlook - he's bet $24 billion on them.

Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) invested $23.9 billion in this year's third quarter, the most in at least 15 years.

The company bought almost $7 billion in stock last quarter, a 90% jump from the $3.62 billion in the second quarter and a staggering 739% increase from the $834 million purchased in the first.

The $23.9 billion also included the $9 billion acquisition of specialty chemical company Lubrizol Corp., finalized in September, and $5 billion in preferred shares and warrants in Bank of America Corp. (NYSE: BAC).

These billion-dollar investments by the "Oracle of Omaha" are another move signaling his bullish outlook on the U.S. market. He's said repeatedly the United States won't see a double-dip recession - and he's putting huge money behind that forecast.

"He sees something, and it's big," Thomas Russo, a partner at investment management firm Gardner, Russo & Gardner, told Bloomberg.

Where Buffett Placed His Bets
Buffett and Berkshire's investments broadened the company's portfolio beyond its financial and consumer-related investment focus.

A Berkshire financial filing showed a $46 billion cost basis in the company's equity investments as of Sept. 30: About $15.9 billion in "banks, insurance and finance," $12.5 billion in "consumer products," and the remaining $17.4 billion in "commercial, industrial and other."

That's a 168% rise in the "commercial, industrial and other" category from Dec. 31, 2010 when such investments totaled only about $6.5 billion, and a 62% increase from 2011's second quarter.

"He's broadly diversifying across numerous industries, and he would perhaps want that to be part of his legacy," David Kass, a professor at the University of Maryland's Robert H. Smith School of Business, told Bloomberg. The recent spending "sounds like at least one major investment. And it wouldn't surprise me if it were two or three."

Berkshire hasn't yet filed its stock statement for the third quarter, and individual companies might not be listed when it does. The company requested permission to omit information from filings that show U.S. equity holdings as of March 31 and June 30, which is occasionally permitted by regulators to prevent copycat investing.

Berkshire likely added to current holdings in the familiar financial and consumer-product industries, which it also increased in the second quarter.

Buffett disclosed in regulatory filings for the quarter ended June 30 an 88% increase in its stake in MasterCard Inc. (NYSE: MA), and a 3% stake in its Wells Fargo & Co. (NYSE: WFC) holdings. Wells Fargo is Berkshire's second-largest portfolio holding behind The Coca-Cola Co. (NYSE: KO). Berkshire also added to its Dollar General Corp. (NYSE: DG) stock.

Todd Combs, Berkshire's portfolio manager appointed last year, is thought to be behind some of the smaller stock buys, as Buffett's purchases are usually no less than $1 billion.

"I wonder if he turned Todd Combs loose," David Rolfe, chief investment officer of Wedgewood Partners Inc., told Bloomberg. "I hope Buffett went to the movies one day and Combs got on the phone and went crazy with buy orders."

Other current holdings Berkshire could've increased last quarter are American Express Co. (NYSE: AXP), Goldman Sachs Group Inc. (NYSE: GS) and The Procter & Gamble Co. (NYSE: PG).

Berkshire's third-quarter acquisition of Lubrizol adds to its collection of businesses that include Burlington Northern Santa Fe LLC, Chinese car and battery maker BYD Co. Ltd., and an 80% stake in Israeli toolmaker Iscar Metalworking Cos.

Rumors swirled in August that Buffett may be tempted to increase his 10% stake in BYD because the company's shares have slumped 80% from their peak value. Buffett and his partner Charlie Munger have enormous respect for BYD's Chairman Wang Chuanfu, but the company's sales have been plunging dramatically. Buffett's loyalty and desire for a bargain, however, may prevail.

"If Warren Buffett still trusts doing business in China, if he does not believe they're due for a serious cleansing and difficulty, then he might be very motivated to buy the company while the stock is being pounded aggressively like it is," Bill Smead, chief investment officer of Smead Capital Management, told Reuters.

Buffett-Style Bargain Hunting
The Standard & Poor's 500 Index fell 14% as Buffett made his third-quarter investments. That made for the index's biggest quarterly decline since a 23% fall in 2008's fourth quarter. Buffett said Berkshire spent more on stocks on Aug. 8, the day the S&P 500 fell more than 6%, than any other day this year.

"We're ready to buy lots of things," Buffett told Bloomberg Television Sept. 30. "If the stock is cheap, we will buy it."

Berkshire also invested at least $18 million in itself. The company announced on Sept. 26 that it was authorizing a stock buyback for the first time in history, as long as the price was less than 1.1 times book value and it retained cash holdings of no less than $20 billion.

Buffett said he thought Berkshire's share price was extremely attractive and couldn't resist buying.

"The cheaper stocks get, the better I like to buy them, whether it's our stock or somebody else's," Buffett told CNBC in September.

Indeed, the last time Buffett invested more than $20 billion in a quarter was in 2008, when the S&P 500 posted its biggest decline since 1937.

Source : http://moneymorning.com/2011/11/08/warren-buffetts-24-billion-bet-on-u-s-market/

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