Warren Buffett Keeps Secrets, Should You?
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
How Berkshire Hathaway Got Bigger by Getting Better (Part Ten)
As we head into the home stretch of our study of Warren Buffett, we are into the tenth article in a journey to learn how he strove to become better and grew the company bigger. His “Owner’s Manual” for Berkshire Hathaway (NYSE: BRK-B) shareholders is an exceptional case study in discovering how to view your own portfolio and the companies within it. I’ve been looking at each principle laid out in the owner’s manual from the perspective found in a story inspired by Chick-fil-A founder Truett Cathy. If you haven’t heard the story yet, back in the 1980’s when a Boston Chicken (now Boston Market) had just finished raising capital to expand; the management at Chick-fil-A spent a long time discussing how they too could get bigger in order to fend off this threat. After hearing enough talk about getting bigger, Cathy pounded the table and said, “I am sick and tired of listening to you talk about how we can get bigger. If we get better, our customers will demand we get bigger.” In this tenth part of this series we are going to explore the silence of Warren Buffett and whether that approach is wise for the average investor.
Principle #12:
“Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are. Therefore we normally will not talk about our investment ideas. This ban extends even to securities we have sold (because we may purchase them again) and to stocks we are incorrectly rumored to be buying. If we deny those reports but say “no comment” on other occasions, the no-comments become confirmation.”
While Buffett is open and honest with shareholders about the businesses they own, he’s pretty tight lipped when it comes to other investment ideas. Because of this silence we love to speculate what he’ll do next. This website has gone as far to hold a contest where readers can guess which stocks Warren Buffett will buy in any given quarter.
In the most recent quarterly report Berkshire bought $1.8 billion worth of stocks and sold $3 billion worth, and until the details are filed we are left to speculate. Did he buy more GM after adding 10 million shares last quarter? Wouldn’t surprise me if he did; while 10 million shares would be a lot for most of us, that quarter billion dollar position is pocket change for Berkshire. Maybe he has something else up his sleeve...only time will tell.
There was a lot of rumblings about a month ago that Buffett was adding Phillips 66 (NYSE: PSX), which was just spun off of Conoco Phillips (NYSE: COP) to the portfolio. As this article pointed out, investors seemed to overlook the fact that Buffett already owned nearly 30 million shares of Conoco Phillips, meaning he’d be getting shares of Phillips 66 without any effort. Sure he could have added to his position. Shares did dip a bit after the spin-off, and that would have been a great time for him to be buying. Thing is, he wasn’t going to tell you and me until he was done buying. He’s pretty smart, and he knows we like to copy.
Not only do we like to copy, but we are not as price conscious as he is and have no problem overpaying. He doesn’t want to compete with this because, as he said in this principle, “Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are. Therefore we normally will not talk about our investment ideas.” While that approach might work for Warren Buffett, it’s not something the average investor can easily pull off.
Let me put it to you this way, you’re no Warren Buffett. If you have a great idea that you think is unique to you it might not be a bad idea before you commit significant money to put it down on paper and share it. Let’s say you are convinced that Apple (NASDAQ: AAPL) is a sham and going all the way to zero. Not only that, your gut feeling is that the play in mobile is the rebirth of Research in Motion (NASDAQ: BBRY). Your call is to short Apple, because you are a firm believer that their $117 billion cash pile is completely invested in monopoly money. Meanwhile, RIM’s got something hot coming up and they are going to take over the world and out of the money calls bought on margin are the way to go. It might be a good idea to at least run that one past your wife. Heck, the Motley Fool has a blog network, why don’t you throw it out there and see if anyone can shoot holes in your argument.
One of Warren Buffett’s competitive advantages is his ability to keep secrets and to buy stocks before everyone else does. Thing is, he’s got a lot of very smart people working for him and assisting him to pick stocks. For the average investor, your competitive advantage is quite the opposite. You have the ability to tap into the collective intelligence of a community of investors to become a better investor.
A site like Motley Fool CAPS has a simple premise: Working together, we can improve our investing results. Harness your competitive advantage as an investor and join in on the world’s greatest investing community. Learn from those around you and become a better investor, then watch your portfolio become bigger. Buffett, while silent on the specifics would agree with this as he clarifies his thoughts on his thirteenth principle by saying, “Though we continue to be unwilling to talk about specific stocks, we freely discuss our business and investment philosophy. I benefited enormously from the intellectual generosity of Ben Graham, the greatest teacher in the history of finance, and I believe it appropriate to pass along what I learned from him, even if that creates new and able investment competitors for Berkshire just as Ben’s teachings did for him.” Want your portfolio to get bigger? Never stop learning and don’t get too caught up into what Buffett doesn’t say, because what he does say is more than enough to make you a better investor.
latimerburned owns shares of Phillips 66, ConocoPhillips, and Apple and has the following options: Apple and Berkshire Hathaway. The Motley Fool owns shares of Apple and Berkshire Hathaway. Motley Fool newsletter services recommend Apple, Berkshire Hathaway, and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
