The Berkshire Hathaway Effect: Market Response to Berkshire’s Portfolio Changes

The Berkshire Hathaway Effect: Market Response to Berkshire’s Portfolio Changes

After the market closed on May 15, 2015, Berkshire Hathaway (NYSE: BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending March 31, 2015. This report revealed numerous changes to Berkshire’s portfolio. The largest were:

(1) Warren Buffett added about $400 million (3%) to his holding in International Business Machines (NYSE:IBM) ($13.8 billion)

(2) Warren Buffett added about $350 million (1.5%) to his holding in Wells Fargo (NYSE: WFC) ($26 billion).

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(3) Todd Combs added about $300 million (50%) to his position in Precision Castparts (NYSE: PCP) ($900 million)

(4) Todd Combs sold about $200 million (60%) of his holding in National Oilwell Varco (NYSE: NOV) ($100 million).

(5) Warren Buffett added about $150 million (5%) to his holding in US Bancorp (NYSE: USB) ($3.7 billion)

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

(1) IBM declined by 0.12% ($173.06 – $0.20). (Warren Buffett had previously mentioned this increased investment during an interview on CNBC on May 4. IBM rose 0.2% on May 4.)

(2) WFC rose by 0.41% ($55.75 +$0.23).

(3) PCP rose by 1.64% ($219.02 +$3.53).

(4) NOV declined by 0.18% ($51.18 – $0.09).

(5) USB rose by 0.61% ($44.20 + $0.27).

These price changes occurred in a slightly positive market on May 18, with the S&P 500 rising 0.30% and the Dow Jones Industrial Average closing higher by 0.14%.

With the exception of IBM (with news of Berkshire’s additional investment being released on May 4), each of the largest additional investments outperformed the market on May 18, while the one major reduction in Berkshire’s portfolio resulted in a decline of that stock. PCP produced the largest outperformance with a gain of 1.64%.

Thus, the Berkshire Hathaway Effect of investors closely following Berkshire’s transactions appears to be taking place. It is important to note that one of Mr. Buffett’s portfolio managers, Todd Combs, is believed to have purchased the additional shares in PCP, and to have sold the shares in NOV.

 

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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.