A look at Berkshire's 5-star holdings.
Investment conglomerate Berkshire Hathaway
I think most investors can learn a lot from the stock picks of Berkshire CEO Warren Buffett and his colleague Lou Simpson, given their focus on buying great businesses at good prices. While the logic behind this philosophy seems straightforward, there are really two things that set Berkshire apart from the rest of the crowd. The first is rather obvious, as the accumulated knowledge of Buffett and Simpson gives them an edge in identifying good businesses, or in the case of Berkshire's railroad purchases, businesses whose economics are slowly improving over time.
The second element that sets Berkshire apart is its time horizon, which Buffett would like to be forever, in an ideal world. In a recent video interview, hedge fund manager Mohnish Pabrai--a true Buffett devotee--refers to this concept of a time horizon advantage as a "time arbitrage." Given that the current focus in the investment world is on annual performance, and more recently even on quarterly and monthly performance, Berkshire is able to benefit by taking stakes in companies whose investment theses may take three to five years to play out. These same stocks are frequently shunned by many mutual and hedge fund managers, who often can be more short-term focused.
In managing The Ultimate Stock-Picker's Portfolio, I also believe in the benefits of a long-term time horizon, which I've stated in my core principles to be three to five years. Where the additional benefit to my model portfolio comes into play, though, is in the ability to piggyback off of Buffett and Simpson's vast sums of accumulated knowledge. Even better, by overlaying Morningstar's equity research on these same stock picks, I can determine the most attractively valued stocks in Berkshire's portfolio at any point in time. Before we get to these best ideas, though, let's recap Berkshire's most recent transactions.
Berkshire added two new names to its portfolio during the last quarter and also added to its positions in eight names. Berkshire added a stake in Bank of America
As for Bank of America, I think it's a great business paying a large dividend, which could help potential investors earn a fairly safe double-digit total return on the stock. Not surprisingly, my colleague Ganesh Rathnam also thinks Bank of America sports a compelling valuation, and as such, I've had it on my watch list for The Ultimate-Stock Picker's Portfolio for the last few months.
Berkshire also added to its stake in Burlington Northern
Subtractions and Deletions
Berkshire also eliminated or reduced its position in some stocks during the quarter. It fully divested itself of H&R Block