Don’t Listen to Buffett – Follow His Money

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Warren Buffett is not an accidental billionaire.

Sure, Buffett smiles for the cameras between sips of Cherry Coke. He always has all the right answers and is even quick with a joke.

But Buffett always has a cutthroat plan in the works.

Uncle Warren is always sure to come off as a folksy, salt-of-the-earth Midwesterner. But it’s his job to outsmart the herd of investors who hang on his every word. Despite representing a “nostalgic, fairer kind of capitalism,” as The Economist notes, “Mr. Buffett is not as saintly as he makes out.”

That’s why we should ignore what he says—and carefully watch how he operates.

Today, we’re going to weasel our way into Buffett’s best plays. Forget about his Midwestern charm and celebrity status. Follow Buffett’s money and you’re sure to profit handsomely…

You probably saw more than your fair share of Warren Buffett headlines over the weekend. That’s because Berkshire’s annual shareholder meeting wrapped up on Saturday.

As anyone who has attended the annual ritual can tell you, it’s more like a festival than a business meeting. In all, about 40,000 attendees make the pilgrimage to Omaha for the shindig.

It wasn’t always like that. In 1981, just 22 shareholders attended the annual shareholder meeting. Buffett and his business partner Charlie Munger held court at a low-key dinner that year. By 1985, the numbers had risen to more than 250, and shortly after that, the venue had changed too: to the Orpheum Theater.

Today, the event is a very different scene. Instead of a historic theater, Berkshire is forced to pack attendees into CenturyLink Center Omaha, a 19,000-seat arena replete with a nearly 200,000 square foot exhibition hall. Despite being one of the biggest spaces in town, the venue only accommodates a fraction of the folks in town for the Berkshire Hathaway meeting.

There’s an interesting mix of people. To be sure, there are a lot of investors who’ve grown rich on their Berkshire Hathaway shares. There is also a large contingent of professionals – fund managers, analysts, and journalists. But since Buffett’s celebrity status has grown (along with his net worth), there’s another big group represented: the fans.

I can’t help but wonder how many folks in the arena are just there to worship at the idol of Berkshire. The cost of admission has dropped considerably in recent years thanks to stock splits. Buying just one Berkshire “B share” at $167 or so gets you four shareholder credentials, as well as a plethora of freebies and special savings at Berkshire’s affiliates over the weekend in Omaha.

That’s why the fans probably outnumber the long-time shareholders at the meeting these days…

Of course, the biggest event of the weekend is always the Q&A with Warren and Charlie. But one thing they won’t do during the Q&A is give advice on individual stocks.

Except that’s not entirely true…

By regulation, many of Buffett and Munger’s favorite stocks are released for public consumption every quarter. Think of it like “hacking” their portfolio.

The Securities and Exchange Commission requires institutional investors with more than $100 million in assets to le a form each quarter called a 13F — it details all their stock positions (with a couple of exceptions) for public consumption. Many investors have made a practice of scouring big firms’ 13F filings, searching through thousands of pages each quarter in hopes that they’ll find buying opportunities in the stocks that the pro investors already like.

So, wondering what Berkshire’s buying?

Only five stocks made their buy list in the most recent quarter: Apple, Delta Air Lines, United Continental, American Airlines, and Bank of New York Mellon.

A few of these plays should catch your eye. As recently as 2013, Buffett claimed the major airlines were downright terrible investments. Yet he’s buying shares hand over fist.

We’ve been chronicling Buffett’s newfound obsessions with the major airlines since last year when Berkshire Hathaway just tossed almost $1.3 billion at three major airline stocks…

“When Delta Airlines was trading below $20 a share, billionaire Warren Buffett dismissed airlines as a place where his conglomerate Berkshire Hathaway would invest, stating at a May 2013 annual shareholder meeting the sector has ‘been a death trap for investors,’” Forbes noted last year. “Now, with Delta trading at far higher prices, Berkshire Hathaway is buying the stock and its peers, American Airlines, United Continental Holdings and Southwest Airlines.”

This is why we do as Buffett does, not as he says.

Major airlines (especially United) are dealing with some serious PR issues right now. But that hasn’t stopped shares from ripping back to all-time highs.

I saved you a trip to Omaha. You can thank me later…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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