Is Warren Buffett's Big Buy Bullish for Stocks Overall?

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Investment demi-god Warren Buffett, just announced his purchase of 9,200 shares of Berkshire Hathaway’s Class A (NYSE: BRK-A) shares at $131,000 each, for a total price of a cool $1.2 billion.

This is of course very bullish for Berkshire shareholders, as both class A and class B (NYSE: BRK-B) shares jumped 2.5% on heavy volume, with investors betting that the notoriously tight fisted Buffett would never be overpaying for his own shares.

It should be noted that Buffett, had authorized share repurchases in September 2011 for up to 110% of book value, but recently raised the price limit to 120% of book.

While Berkshire shareholders (me included) rejoice, the question that I have is whether Buffett’s large purchase is bullish for the overall market. Let’s explore a little:

First of all, Berkshire Hathaway portfolio is composed of a diverse blend of companies, from home builders, to chocolates (See’s Candies,) to Dairy Queen, railroads, CocaCola, banks (a huge stake in Wells Fargo (NYSE: WFC) ) to IBM . Buffett sees the numbers from his many privately owned companies daily, and thus has a pretty good handle in terms of what is truly taking place in our economy. In 2008 he warned investors that the numbers he was seeing weren’t so hot, and last year, when Congress was dilly dallying over the “fiscal cliff” Buffett was buying as stocks plummeted, especially adding to his position in Wells, emphatically stating that the numbers he was seeing were staying pretty steady, and nowhere close to what the horrific ones he saw in 2008.

Market Timing?

Buffett is not a believer in market timing. In fact, there’s an excellent column here on CNBC that I would highly recommend all investors read where he makes a strong case for buy and hold. To quote Buffett- "I say, basically, 'hold.' The idea that the European news or slowdown in this or that or anything like that, that would not cause you to, if you owned a good farm and had it run by a good tenant, you wouldn't sell it because somebody says, 'Here's a news item,' you know, 'This is happening in Greece' or something of the sort.”

So, is Buffett’s purchase of Berkshire shares ‘market timing’ ? Only in the sense that Buffett is comfortable in purchasing shares at these prices, believing they are cheap at the current moment.

Eternal Bull

That said, Buffett has always been a long term bull. According to him, investing in great companies is the surest way to generate long term wealth, so his purchases here are in no means out of the ordinary, especially since he had been searching for ways to invest his massive amount of cash, perhaps to protect the hoard against the inflation he has previously announced is an obvious outcome of all the quantitative easing.

The Verdict

Yes, Buffett’s buy does make me, and likely other investors, more bullish on stocks overall. Buffett is the smartest of the smart money, and where it goes, investors like me follow. If nothing else, this adds a short term pop to overall market psychology, but remember, Buffett’s not in this for the short term.

More Buffett

For the record, Buffett sold most of his stake in Johnson & Johnson and General Electric last quarter, and upped his stake in Wells Fargo, IBM, and General Motors. For a full list please visit here. I mention this because although I mentioned Warren’s belief in buy and hold above, that doesn’t mean that he doesn’t alter his positions as he believes the situation dictates. Remember, being a good investor means being resolute in your beliefs and not panicking when others do, but also being flexible enough to change your mind when the situation dictates. 


margiecfl has a long position in Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and Wells Fargo & Company. Motley Fool newsletter services recommend Berkshire Hathaway and Wells Fargo & 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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