A strong stock picker with little tech appetite

Juliette Michel - Billionaire investor Warren Buffett, who jumped into the takeover battle for Anadarko Petroleum last week, has won renown and wealth for unearthing undervalued companies, a record countered only by his reticence towards high tech.

Buffett, 88, discovered his zeal for investing early in life and has become a multi-billionaire because of his ability to sniff out value.

"The year was 1942, I was 11, and I went all in, investing US$114.75 I had begun accumulating at age 6," Buffett recalled in his annual letter to shareholders last year.

"What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good."

Since taking control of Berkshire Hathaway in 1965, Buffett has marshalled the company to an annual average gain of 20.5%, more than double the average advance of the S&P 500.

Berkshire's market value is now around US$530 billion.

The success comes not only from Buffett's investments in other publicly-traded companies but also from an assortment of holdings of profitable companies in a range of sectors, including insurance, freight rail transportation and electric utilities.

Watched closely

But Buffett is an enterprising stock picker and his quarterly list of holdings is closely watched by other investors.

"Most portfolio managers would be considered successful when they are right 70% of the time. Warren Buffet is right 90% of the time," said David Kass, a finance professor at the University of Maryland and the author of a blog on Buffett and Berkshire Hathaway.

"This is what differentiates him."

Buffett holds shares in dozens of companies. His approach is to scour quarterly and annual reports for signs of business strength, good long-term profit prospects underestimated by the broader market.

He typically grants companies vast autonomy and is not known for browbeating management to increase dividends and shareholder buybacks, as other activist investors can.

Big bets

One of Buffett's first big bets was on American Express in the 1960s, which was under distress from loans to a scandal-ridden food company. He believed in the company's prospects and today holds around 18 percent of the credit card giant.

Buffett also is a big investor in retail banks such as Bank of America, JPMorgan Chase and Wells Fargo, holding millions of shares in those firms.

"He is a plain vanilla investor," Kass said. "He does not use exotic financial instruments, he does not borrow too much."

Buffett also stands to gain in a preferred stock payback if his US$10 billion investment in Occidental Petroleum, announced last week, enables that midsized oil company to beat out much bigger Chevron in a contest to acquire Anadarko Petroleum.

Tech giants

Despite all these hits, a critic could find fault with Buffett for missing the boat on a host of technology giants, including Amazon, Facebook and Google.

"He does not have an expertise there," explained Kass. "He does not see any reason he could outperform the market."

Buffett has not completely avoided technology shares. He recently held IBM, although the shares were acquired in 2011 and sold in 2018.

The big exception today is Apple, in which Berkshire holds some 250 million shares worth more than US$39 billion.

Earlier this year, Buffett told CNBC that investment managers Todd Combs and Ted Weschler, who joined in 2010 and 2012 respectively, had trailed the S&P 500 by a "tiny bit" since joining the company - a period when tech stocks did notably well.

But Combs and Weschler were not alone. "They've done better than I have," Buffett said.

Buffett sat out the late-1990s tech boom, noted Lawrence Cunningham, a law professor at George Washington University and the author of several books on Berkshire.

"Some said Buffett lost his hand, he is out of touch," Cunningham said. But, when the market crashed, "Warren Buffet felt vindicated." – Nampa/AFP