Friday, May 15, 2009

Warren Buffett Not Buying Lots of New Stocks: Finding Value in Bonds Instead?

Warren Buffett's investment vehicle Berkshire Hathaway added very few equity positions in the first quarter of 2009 in documents released to the SEC. Mostly he added to what he already had in JNJ, WFC, and his railroad holdings and sold some money losers including a big loss in COP.

The big question is WHY? Didn't stock prices fall fast and far enough for him to pick up some real bargains?

The speculation is that he sees value in the bond markets. Perhaps this is true. I see nice valuations there too, especially in lower graded bonds. Forget the Treasuries and AAAs.

But I think the real reason Warren skipped on the equity markets is simple. He didn't have the cash to make large stock purchases. His celebrated $50 billion cash cushion was gone. The best evidence of this was his decision to sell JNJ and PG stock earlier this year. These are core BRK holdings, the very types of companies Warren loves to own.

I think Warren was being conservative after large investments in GE and GS and thought "Why not keep $10 billion in the bank for emergencies?" After all, BRK is an insurance company and not a private piggy bank for Charlie and Warren.

I'm a huge fan of Warren Buffett and a long time BRK shareholder. I think much can be learned from what Warren does---and in this case what Warren doesn't do.

Robert J. Abalos, Esq.