Thursday, October 23, 2008

The New Buffettology: Chp 16: Where Warren Buffett Is Investing Now

There is tremendous educational value in understanding what investments Warren has made and why. The price has to be right and the company must have a durable competitive advantage for Warren to make a long term investment in a company's stock. The following is a partial list of investments that were either made by Warren, through his foundation, or by Berkshire Hathaway during the period of 1998 to 2001.

Dun & Bradstreet Corp.: DNB: This company sells business information to other businesses. This is a Berkshire holding believed to be purchased for $15/sh in 1999. Subsequently, Moody's Investor Services was spun-off, and in 2001 Berkshire was up 293% on the initial investment.

Furniture Brands International: FBN: This company is a top furniture manufacturer in America and is a Berkshire holding. The authors believe the stock was purchased in 2000 for around $14/sh against earnings of $1.92/sh. The stock was purchased after the stock bubble burst in 1999 and in 2001 Berkshire's investment was up 79%.

GPU Inc.: GPU: This is a utility holding company that distributes electricity in New Jersey, Pennsylvania and Australia. It is believed that Berkshire started buying the stock at $25/sh in 2000 against earnings of $3.25/sh. It was purchased when the cost to create electricity exceeded the price GPU could charge and the company reported an earnings loss.

Nike Inc.: NKE: This is the number one shoe company in the world and it is believed that Berkshire was purchasing the stock in 1998 and 2000 when the shares were trading below $30/sh.

Yum Brands: YUM: Yum owns KFC, Pizza Hut and Taco Bell. It is believed Berkshire bought shares in YUM in 2000, after the stock market crash for $24/sh against earnings of $3.65/sh.

Johns Manville: Acquired by Berkshire: This company is the largest U.S. manufacturer of insulation products, roofing products, filtration systems and fiber mats. Unfortuntately for the company, they used to make asbestos products and were sued and went into bankruptcy court where 78% of the company was put into trust to settle against the suits. Berkshire bought the company for $1.8 billion against pretax earnings of $343.75 million.

The companies represented on this list are all beleive to have durable competitive advantages and were purchased after a temporary company setback or a stock market panic which left the stock prices pessimistically low.

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