Buffett's buying binge: 'He sees something, and it's big'

Warren E. Buffett's Berkshire Hathaway Inc. invested $23.9 billion in the third quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond holdings in consumer and financial companies. Berkshire Hathaway Ticker:(BRK-A) bought almost $7 billion in equity securities in the third quarter, compared with $3.62 billion in the second quarter and $834 million in the first, the company said Nov. 4 in a filing. Stock holdings labeled “commercial, industrial and other” soared 62% in the quarter to $17.4 billion on a cost basis, surpassing equity investments in financial and consumer product firms. “He sees something, and it's big,” said Thomas Russo, a partner at Berkshire Hathaway investor Gardner Russo & Gardner. Mr. Buffett, 81, drew down Berkshire Hathaway's cash as Europe's debt crisis and Standard & Poor's downgrade of the United States pushed stocks to their worst quarterly performance since 2008. The investments disclosed Nov. 4 include $6.9 billion in equities, $5 billion for preferred shares and warrants in Bank of America Corp. Ticker:(BAC), and the acquisition of Lubrizol Corp. for about $9 billion. Mr. Buffett is expanding a portfolio that for more than 20 years has included equity stakes in Coca-Cola Co. Ticker:(KO), the world's largest soft-drink maker, and Wells Fargo & Co. Ticker:(WFC), now the No. 1 U.S. home lender. The chairman and chief executive acquired a power company in 2000 and railroad Burlington Northern Santa Fe last year. “Historically, he has preferred consumer products and banking to industrial companies,” said James Armstrong, president of Berkshire Hathaway shareholder Henry H. Armstrong Associates. “But the market changes, so the names he comes up with change.”

U.S. DOWNGRADE

The S&P 500 fell 14% in the third quarter, the most since it dropped 23% in the fourth quarter of 2008. The period's biggest one-day decline was more than 6% on Aug. 8, the first trading day after S&P stripped the U.S. government's AAA rating. Berkshire Hathaway spent more on stocks that day than any other this year, Mr. Buffett told Charlie Rose in an interview broadcast on PBS on Aug. 15. Berkshire Hathaway's third-quarter net income slid 24% to $2.28 billion as the stock market slump pressured the value of Mr. Buffett's equity derivative bets, the firm said in the filing. Insurance units posted a $1.7 billion pretax underwriting gain, while net earnings at the railroad rose 8.5% to $766 million. The market value of the stock portfolio rose to $68.1 billion Sept. 30, from $67.6 billion June 30. Berkshire Hathaway's holdings of banks, insurance and finance stocks advanced 2.7% to $16 billion on a cost basis in the third quarter, while consumer products shares fell 5% to $12.6 billion. Berkshire Hathaway's equity investments include stakes in American Express Co. Ticker:(AXP) and Procter & Gamble Co. Ticker:(PG).

CONFIDENTIAL TREATMENT

Berkshire Hathaway has disclosed new stakes this year in MasterCard Inc. (MA), the world's second-biggest payments network, and retailer Dollar General Corp. (DG). Mr. Buffett's firm has requested permission to omit information from filings that list U.S. equity holdings as of March 31 and June 30. Regulators sometimes let companies withhold data to limit copycat investing while building or cutting a position. Mr. Buffett, in preparation for his eventual retirement, hired money manager Todd Combs last year and instructed him to focus on equities. MasterCard was one of Mr. Combs' holdings at his former hedge fund, Castle Point Capital Management LLC. “I wonder if he turned Todd Combs loose,” said David Rolfe, chief investment officer of Berkshire Hathaway investor Wedgewood Partners Inc., which also owns stakes in AmEx and Visa Inc. (V), the No. 1 payments network. “I hope Buffett went to the movies one day, and Combs got on the phone and went crazy with buy orders” for MasterCard. Manufacturing firms with proprietary technology such as 3M Co. (MMM), the maker of auto parts and Scotch-Brite sponges, and toolmaker Kennametal Inc. (KMT) may appeal to Mr. Buffett, Mr. Russo said. MasterCard had a market value of about $46 billion as of Nov. 4, compared with the $55.6 billion from 3M and $3.3 billion for Kennametal. Mr. Buffett didn't respond to a request for comment e-mailed to an assistant outside normal business hours in Omaha, Neb., where Berkshire Hathaway is based. The last time he invested more than $20 billion in a period was 2008, when he did it in both the second and fourth quarters. Mr. Buffett deployed more than $70 billion that year, including $10.1 billion in stocks, as the S&P 500 posted its biggest decline since 1937. This year, Berkshire Hathaway bought $11.4 billion of stocks in the nine-month period ended Sept. 30, while selling $885 million of equities. Cash holdings dropped to $34.8 billion on Sept. 30, from $47.9 billion on June 30. The hoard is replenished from maturing securities and profit from investments and the company's more than 70 operating units. Mr. Buffett directed $1.9 billion to fixed-maturity securities and about $2.2 billion to property, plants and equipment at Berkshire Hathaway's units. Some of the results were derived by subtracting first-half results from Sept. 30 data. Berkshire Hathaway, which doesn't pay a dividend, started its first buyback in September, giving Mr. Buffett an additional investment option. “We're ready to buy lots of things,” he said in an interview on Bloomberg Television on Sept. 30. “If the stock is cheap, we will buy it.” Shares of Berkshire Hathaway declined 8% in the third quarter and 3.9% for the year through Nov. 4. Shares of 3M fell 24% during the quarter, while Kennametal slid 22% and MasterCard rose 5.3%. Berkshire Hathaway bought 80% of Israel's Iscar Metalworking Cos., a maker of machine tools, for $4 billion in 2006. Mr. Buffett has expanded MidAmerican Energy Holdings, the power producer he bought in 2000. Burlington Northern hauls freight over a 32,000-mile rail network. “He's broadly diversifying across numerous industries, and he would perhaps want that to be part of his legacy,” said David Kass, a professor at the University of Maryland's Robert H. Smith School of Business. The latest spending spree “sounds like at least one major investment. And it wouldn't surprise me if it were two or three,” Mr. Kass said.