"I used to be Snow White ... but I drifted."Yesterday, after the close, Warren Buffett's Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) announced a number of portfolio changes.
-- Mae West
Since I penned my "Kass Katch: 11 Reasons to Short Berkshire" in March 2008, I have consistently questioned Buffett's style drift -- specifically, his $30 billion-plus notional short put position on the U.S. stock market. I have also questioned whether the commoditization of financial industry products has flooded the moat surrounding some of Berkshire's largest financial positions, including American Express (AXP Quote - Cramer on AXP - Stock Picks), U.S. Bancorp (USB Quote - Cramer on USB - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks).
My critical views of the Oracle of Omaha's investment strategy were not very popular. In particular, the responses I received after I highlighted my Berkshire short in a May 2008 Barron's interview were a collective Bronx cheer.
Meanwhile, in the interim interval, Berkshire Hathaway's common stock has slipped dramatically in value from $140,000 a share to $84,000 a share.
"All for one! One for all! Every man for himself!"
-- The Three Stooges: "Restless Knights" (1935)
As Jim Cramer opines, yesterday's release of the changes to the Berkshire portfolio raises more questions than answers. Specifically, Buffett has surprisingly sold off portions of some meaningful core positions, including Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks), ConocoPhillips (COP Quote - Cramer on COP - Stock Picks) and Procter & Gamble (PG Quote - Cramer on PG - Stock Picks). Placing a terminal value on some meaningful investments and then selling them goes to the root of Buffett's long-held investment strategy and questions the basic notion that his favorite holding period is forever.
Here are some additional questions that should be asked of Warren Buffett (some of which I hope to relay at this year's Berkshire Annual Meeting), especially after the release of Berkshire Hathaway's portfolio changes:
- Have sales been made because Warren Buffett now feels that the moats protecting the Johnson & Johnson, ConocoPhillips and Procter & Gamble franchises have been flooded?
- If those moats were flooded, how does Buffett rationalize still holding 300 million shares of Wells Fargo and 151 million shares of American Express, two financial companies that seemingly lost their proprietary character and market-leading positions several years ago?
- Why has Berkshire substantially depleted its $40 billion cash hoard with a pell-mell plunge into purchases of General Electric (GE Quote - Cramer on GE - Stock Picks), Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) and other recent investments? What was the rush, and why was the cash "burning a hole in Buffett's pocket?"
- Is Warren Buffett seeking a margin of safety in building up cash in light of the precipitous drop in his portfolio's value?
- Has Warren Buffett reassessed his view of the economic outlook over the intermediate term?
- While the losses from his massive short index put position have resulted in ever larger non-cash charges/losses, has Buffett had second thoughts regarding these derivative bets, and has he decided to use the cash raised to hedge the short position?
"Let blockheads read what blockheads write."
-- Warren Buffett
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