Berkshire Added to Wells Fargo Stake as Shares Fell

Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. added to holdings of lenders Wells Fargo & Co and U.S. Bancorp in the first quarter as the shares traded at their lowest prices in more than a decade.

Buffett’s firm, the largest shareholder in San Francisco- based Wells Fargo, increased its stake in the bank by about 4.3 percent in the first quarter to 302.6 million shares, Berkshire said in a regulatory filing today disclosing its U.S. stock portfolio as of March 31. Omaha, Nebraska-based Berkshire increased its holding of U.S. Bancorp by about 2.2 percent.

Banks that attract deposits at low rates were undervalued in the first quarter because investors wrongly believed that the entire industry was hobbled by risky bets and reckless lending, Buffett said at Berkshire’s annual meeting earlier this month. The KBW Bank Index fell 37 percent in the first quarter.

“All banks aren’t alike by a long shot, and in our view Wells Fargo, among the large banks, has some advantages the others do not,” said Buffett, Berkshire’s chief executive officer and chairman, at the company’s May 2 annual meeting.

Wells Fargo shares closed at $24.87 today on the New York Stock Exchange after falling below $9 in March. Buffett said he was speaking to a class the day the shares dropped that low and told students that, at such a price, “If I had to put all of my net worth into stock, that would be the stock.”

‘Where His Mouth Is’

Buffett is “putting his money where his mouth is,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington who has studied Berkshire’s investing history. “I don’t think he’s ever been this transparent about what he’s doing.”

Known as the “Oracle of Omaha,” Buffett has become a cult figure among investors, drawing a record 35,000 people for the firm’s shareholders meeting this year. Mutual funds and individuals mimic the stock picks to duplicate Buffett’s success, and a study co-authored by Martin in 2007 found that using this strategy for 31 years would have delivered annualized returns of about 25 percent, double the Standard & Poor’s 500.

Berkshire spent $624 million on stocks in the quarter, and sold shares of companies including oil producer ConocoPhillips for $739 million, Buffett said in a separate filing last week. The decline in ConocoPhillips stock contributed to Berkshire’s worst quarterly loss in at least two decades as Buffett, 78, worked to recover from what he called his “major mistake” of buying the shares with oil prices near their peak.

Johnson & Johnson

Buffett’s firm also added to holdings of Johnson & Johnson, the world’s largest maker of health-care products, in the period after selling shares in the New Brunswick, New Jersey-based company in the fourth quarter.

Buffett said in February he reluctantly sold J&J shares near the end of 2008 to help fund investments in $8 billion of preferred shares and warrants of General Electric Co. and Goldman Sachs Group Inc. Berkshire’s holding of J&J expanded 14 percent in the three months ended March 31 to 32.5 million shares.

The increased stake falls short of the 61.8 million shares Berkshire held at the quarter ended Sept. 30. J&J sold for an average of about $60.10 in the last three months of 2008 and $54.65 in the first three months of this year. The stock closed at $55.41 today.

“It probably got down to where he couldn’t pass it up,” Martin said.

Berkshire increased its stake in Union Pacific Corp., the second-largest U.S. railroad, by 7.3 percent to 9.6 million shares. Berkshire is the largest shareholder in that firm’s larger rival, Burlington Northern Santa Fe Corp.

Nalco, UnitedHealth

Berkshire also increased its stake in Nalco Holding Co., the world’s biggest maker of water purification equipment, by 14 percent to 32.5 million. Buffett’s company first disclosed the investment when it released the U.S. portfolio data for Dec. 31.

Berkshire cut its stake in UnitedHealth Group Inc., the top U.S. health insurer by sales, by 29 percent to 4.5 million shares. Buffett’s firm also reduced the holding in the fourth quarter. Don Nathan, a spokesman for Minnetonka, Minnesota-based UnitedHealth, declined to comment.

The amount invested in equities was the lowest since at least 2005 and about one-fifth of Berkshire’s average over the 16 prior periods, reflecting Buffett’s strategy of focusing on fixed-income holdings to gain yields as high as 15 percent. Berkshire spent $4.9 billion on fixed-maturity securities and $3.1 billion on “other investments” in the first quarter, according to a regulatory filing. The S&P 500 Index dropped 12 percent in the period.

CarMax

Buffett, named the world’s second-richest person by Forbes magazine, makes most of the investment decisions at Berkshire, while Lou Simpson, 72, manages the portfolio for car-insurance unit Geico Corp. Buffett has cautioned against assuming all moves in the equity portfolio are his.

Berkshire slashed holdings of CarMax Inc., the biggest U.S. used-car dealer, by 32 percent to 12 million.

Investors can’t always be certain they have full information on Berkshire’s stock holdings because Buffett often receives U.S. Securities and Exchange Commission permission to delay disclosure to avoid copycat investing. Today’s filing only lists equities traded on U.S. exchanges, valued at $40.9 billion as of March 31. Buffett discloses other holdings in the company’s annual report and filings with non-U.S. regulators.