We all have a fantasy we'd like to see come true.
For some, it's being in your favorite football team's locker room during the coach's inspiring halftime speech. For others, it might be a backstage pass to a legendary musician's concert.
Nothing so pedestrian for us. Instead, we ask: What if you could be inside Berkshire's boardroom and see how its directors vet potential companies for investment?
Luckily, that's not just a pipe dream -- there's a way we can find out.
Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.B) recently disclosed its holdings through a 13F filing with the Security and Exchange Commission (SEC). Overall, Berkshire Hathaway Inc. (NYSE:BRK.B)'s equity positions increased roughly 4.7% from the previous quarter, to $89 billion, which tells us Buffett is a buyer in a market that others have been disparaging.
However, Berkshire Hathaway Inc. (NYSE:BRK.B)'s success speaks for itself. Shares are up 73% since 2009 -- more than 18% year over year. The Oracle of Omaha clearly has a method to his madness.
A glance at the 13F filing reveals far more information than just ticker symbols and number of shares. It tells us what positions are being added and which sector they belong to. A couple of interesting things stand out immediately.
Energy company Suncor Energy Inc. (USA) (NYSE:SU) has been added to a portfolio already occupied by ConocoPhillips (NYSE:COP) and Phillips 66 (NYSE:PSX), which means Berkshire Hathaway Inc. (NYSE:BRK.B) is heavily invested in the U.S. energy revival. And satellite television provider DISH Network Corp. (NASDAQ:DISH) is a new holding altogether.
Perhaps the most interesting addition was the nearly 50% increase in shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI), to $9.55 million. This Netherlands-based industrial engineering and construction company has been touted by another investment guru turned Berkshire Hathaway Inc. (NYSE:BRK.B) director, Meryl Witmer.
Witmer is general partner of Eagle Capital Management and a participant in Barron's annual roundtable who was recently appointed as a Berkshire board director. As a student of value investing, her holdings show a lot of similarities to Buffett's. Once again, DISH Network Corp. (NASDAQ:DISH) shows up as a new position, and The Coca-Cola Company (NYSE:KO) can be found in both portfolios.
In February, Witmer spoke at the annual Barron's Roundtable and named Chicago Bridge & Iron Company N.V. (NYSE:CBI) as one of her top three picks for 2013. Since then, the stock has risen nearly 20%. This is the same company we see on Buffett's 13F being bought hand over fist.
The value investing principles used by Buffett and Witmer are surprisingly simple. Every company they invest in shares three similarities:
Strong Customer Base
Companies on Berkshire's radar have a growing customer base. In the case of Chicago Bridge & Iron Company N.V. (NYSE:CBI), they're positioned to take advantage of the growth in natural gas and shale oil. Customers who are expanding their operations will be even more reliant on Chicago Bridge's proprietary technologies. In the case of DISH Network Corp. (NASDAQ:DISH), Buffett exited his position in newspaper publisher Gannett Co., Inc. (NYSE:GCI) in favor of an Internet and TV medium.
Enduring Business Model
It may seem obvious, but it's important to invest in a company that has long-term staying power, and not positioned for just a short-term trade. Again, we can learn from Chicago Bridge & Iron Company N.V. (NYSE:CBI). As America gears up for higher oil production and natural gas usage, Chicago Bridge's business of building industrial infrastructure is going to be needed for the next decade at a minimum. A high-cost barrier of entry to the industry makes for a solid company with little competition. Knowing where a company derives its profit from is essential and one of Buffett's investment rules: "Know what you own."