Buffett often buys entire companies, which makes it impossible for retail investors to piggyback those investments. However, when he buys shares in marketable securities, retail investors may want to pay attention.
In 2008, two professors - Gerald Martin of American University and John Puthenpurackal of University of Las Vegas - found that buying whatever stocks Buffett owned a month after Buffett disclosed his ownership via regulatory filings yielded returns of 10.75 percent per year above the S&P 500 from 1976 to 2006.
Chart courtesy of Martin and Puthenpurackal
In 2011, Buffett's Berkshire Hathaway made three major investments in marketable securities. They are:
*A $5 billion 6% preferred stock of Bank of America (NYSE:BAC) that came with warrants to buy 700 million common shares at $7.14 per share before September 2021
*63.9 million shares of IBM acquired at roughly $170 per share
*Increased existing stake in Wells Fargo by $1 billion worth of common shares
Berkshire Hathaway now owns 7.6 percent of Wells Fargo and 5.5 percent of IBM. Under current circumstances, 700 million common shares of Bank of America translate to 6.5 percent ownership.
Buffett on Bank of America and Wells Fargo:
The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels. At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that will endure long after today's problems are forgotten. Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire.
Buffett on IBM:
As all business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today. Their operational accomplishments were truly extraordinary.
But their financial management was equally brilliant, particularly in recent years as the company's financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders. The company has used debt wisely, made value-adding acquisitions almost exclusively for cash and aggressively repurchased its own stock.