The Buffett Effect – Market Response to Berkshire’s Portfolio Changes

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After the market closed on February 17, 2015, Berkshire Hathaway (BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending December 31, 2014. This report revealed numerous changes to Berkshire’s portfolio. The three largest were:

(1) Warren Buffett sold his $4 billion investment in Exxon Mobil (XOM),

(2) Mr. Buffett added $1 billion (+9%) to his holding in International Business Machines (IBM) ($12 billion), and

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(3) Todd Combs (Fortune Magazine October 27, 2014) added about $800 million to his position in Deere (DE) ($1.5 billion).

So how did these stocks perform on their first day of trading (February 18, 2015) after release of Berkshire’s 13F filing?

(1) XOM declined by 2.19% ($91.01 – $2.04)

(2) IBM rose by 0.76% ($162.19 + $1.23)

(3) DE rose by 3.15% ($92.75 + $2.83)

These large percentage changes in prices occurred in a relatively stable overall market on February 18, with the S&P 500 declining 0.03% and the Dow Jones Industrial Average closing lower by 0.10%.

Thus the “Warren Buffett Effect” of investors closely following the Oracle of Omaha’s transactions appears to be significant. (It is important to note, however, that one of Mr. Buffett’s portfolio managers, Todd Combs, is believed to have purchased the additional shares of DE.)

 

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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: [email protected] (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.