Should Investors Buy Warren Buffett's Holdings After He Discloses Them?

Some investors believe that they can profit by imitating famous institutional investment managers' stock purchases and sales. By recreating these large money managers' portfolios, hopeful investors aim to recreate these managers' returns. The practice of following institutional investment managers' stock market moves is often called whale watching. After market close on May 15, a number of institutional investment managers, including billionaire Warren Buffett's Berkshire Hathaway (NYSE: BRK-A), reported their March 31 holdings in 13-F SEC filings. If investors were to copy a stock purchase reported by Buffett on May 15, they would have followed him at a delay, since the filing reports Buffett's holdings from March 31. This delay might raise questions as to the validity of so-called whale watching as an investment strategy. Investors cannot be sure that Warren Buffett's stock market moves will be profitable for his company. In addition, even if these moves were to be profitable for Buffett, investors have no guarantee that copying these moves more than a month later would be profitable. Considering this uncertainty, would investors who copied Berkshire Hathaway's reported portfolio additions have beaten the S&P 500 to date? Below are recent performances of two portfolio additions reported by Berkshire Hathaway in its May 15 SEC filing: General Motors GM and Viacom VIAB. General Motors has fallen approximately 10.1 percent since market open on May 16. J.D. Power and Associates said in a June 20 statement that three of General Motors four brands beat beat the industry average in the Initial Quality Study. Since May 15, at least seven notable equity research entities have reiterated Buy, Outperform or Overweight ratings on General Motors. During that time frame, at least four research firms reiterated hold or neutral ratings on General Motors. Thursday, General Motors had a price-to-earnings ratio near 5.7. Competitors Ford F and Toyota TM had price-to-earnings ratios near 2.1 and 34.3, respectively. Viacom has fallen around 2.0 percent since equity markets opened on May 16. This fall occurred while the company announced a $400 million debt offering on June 7. The company said it expects to use the proceeds of this offering for “general corporate purposes,” which could include share repurchases or repayment of other debt. In addition, on May 23, the company announced Board approval of a quarterly dividend increase from $0.25 per share to $0.275 per share. Moreover, Reuters reported on May 16 that Viacom settled lawsuits with Time Warner over distribution of Viacom content to mobile devices. Conclusion The aforementioned performances by General Motors and Viacom are only two examples of whale watching outcomes. However, investors who, at market open on May 16, purchased shares of these two companies would have experienced losses to date. Thus, in this instance, imitating Warren Buffett's reported investment additions would not have been a profitable strategy. These results did not necessarily harm Berkshire Hathaway, though. Its most recent 13-F filing did not reveal whether the firm has held shares of General Motors or Viacom since March 31.

Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.