Warren Buffett’s Short-Term Hit and Run Transactions

Warren Buffett is known for his highly successful value investing approach. The “Oracle of Omaha” usually puts his money down, long-term, in stable companies, whose businesses he understands, like The Coca-Cola Co (NYSE:KO) or American Express Company (NYSE:AXP) – both these stakes have been in his portfolio for at least 15 years.

However, over the past few years, his fund, Berkshire Hathaway, has disclosed some short or medium-term stakes, positions it did not maintain for more than a year.

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In many occasions, these stocks were picked by one of Buffett’s hedge fund managers, Todd Combs and Ted Weschler, and not by himself. For instance, check out Combs’ participation in the Precision Castparts Corp. (NYSE:PCP) deal, one of the firm’s largest moves of all time.

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In this article, we will seek to shed light at the criteria behind these selections and the decisions to sell out. It should be noted that we’ll focus only on stakes closed out between 2010 and 2015, inclusive, and not on large reductions, like the 78% cut that the firm’s Chicago Bridge & Iron Company N.V. (NYSE:CBI) position experienced in the third quarter of 2015, or the 93% trim seen at the Graham Holdings Co (NYSE:GHC) bet over the second quarter of 2014.

As readers will notice, it seems like Combs and Weschler’s strategy is all about profit taking, acquiring stocks at low prices and selling when they surge, instead of keeping them for long periods of time.

Express Scripts Holding Company (NASDAQ:ESRX)

Let’s start with one of the most recent positions that Berkshire Hathaway held for less than two years, Express Scripts Holding Company (NASDAQ:ESRX). Buffett’s firm opened a stake in the Fortune 100 company over the third quarter of 2014; it comprised 449,489 shares, valued at more than $31 million as of September 30,2014 – which makes it a rather small investment for Berkshire Hathaway.

As many analysts noted at the time, the stock was most likely picked by either Todd Combs or Ted Weschler, who have been managing some of Berkshire’s investments for several years now.

Express Scripts Holding Company (NASDAQ:ESRX)’s stock was almost flat in the third quarter of 2014, when the position was opened. And, it seems like Berkshire was hoping for a turnaround. However, the firm sold all of its shares of the company over the following quarter, at an estimated average price of $78.34, presumably generating a small return on its investment – especially if the position was started in July of 2014.

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Archer Daniels Midland Company (NYSE:ADM)

Next up is Archer Daniels Midland Company (NYSE:ADM), another stake that Berkshire only held for one quarter. The fund bought more than 5.95 million shares of the company over the fourth quarter of 2012, when the stock was almost flat – although slightly up, after struggling in previous quarters. The stake was valued at more than $163 million by the end of 2012.

After Berkshire acquired the stake, the company reported strong fourth quarter results, which helped its stock recuperate approximately 25 percent of its value over the first quarter of 2013. Once again, the position was closed after one quarter, at a profit. In its 13F for the first quarter of 2013, Berkshire declared holding no shares of Archer Daniels Midland Company (NYSE:ADM).

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Intel Corporation (NASDAQ:INTC)

Another stake that didn’t last long in Buffett’s portfolio was the one in Intel Corporation (NASDAQ:INTC), which the fund started in the third quarter of 2011, when prices were tumbling, and closed out in the second quarter of 2012, when the valuation had recuperated substantially. The stake, which initially comprised 9.33 million shares, worth almost $200 million by September 30, 2011, was increased by 23% over the fourth quarter of 2011, to 11.49 million shares, as the price rebounded, and then trimmed by 32% in the first quarter of 2012, as prices got close to their 52 week high.

The position was finally closed out in the second quarter of 2012. When asked about the move, Buffett acknowledged he had made a $60 million gain, or approximately 25%, on the world’s largest semiconductor company. In fact, Berkshire timely liquidated its stake in Intel Corporation (NASDAQ:INTC), just before the chipmaker cut its third-quarter sales estimate by roughly $1 billion.

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CVS Health Corp (NYSE:CVS)

Berkshire’s stake in CVS Health Corp (NYSE:CVS) presents another interesting case. The firm started a position in the company, comprising 5.66 million shares – or $190 million in stock, in the third quarter of 2011, and raised it to 7.1 million shares over the fourth quarter of the year. However, as the stock price recuperated over 2012, the firm started to sell the stock, disposing of 25% of its shares over the second quarter of 2012, and finally closing out its stake in the third quarter of 2012.

After a year holding CVS Health Corp (NYSE:CVS)’s stock, Berkshire cashed out, once again, at a profit. When the fund opened the stake, the stock traded between $32.06 and $38.54; when it closed the position, shares traded in the $44.12 to $48.61 range.

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Exxon Mobil Corporation (NYSE:XOM), The Outlier

Unlike the four stocks listed above, which were held by Berkshire by a maximum of one year, Exxon Mobil Corporation (NYSE:XOM) appeared in the firm’s portfolio twice over the last five years, remaining for 2 and a half years in the first occasion, and for 1 and a half year in the second time around.

Exxon made it to Buffett’s holdings in the second quarter of 2009, when the firm acquired 854,490 shares at very low prices – the stake was worth less than $60 million by June 30, 2009. Over the following quarter, the fund boosted its exposure by 49% to 1.27 million shares. In the fourth quarter of the year, the stake was trimmed by 66%, and then remained unchanged for the following seven quarters, until it was closed out in the fourth quarter of 2011, after the stock recuperated from its Q2’11 plummet.

Exxon Mobil Corporation (NYSE:XOM)’s stock traded below $75 when the firm acquired exposure; when the position was closed, it was trading around similar prices, although it surpassed the $85 threshold toward the end of the year.

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Berkshire bought into the energy company once again in the second quarter of 2013 – acquiring 31.24 million shares or more than $2.8 billion in stock, continued to increase its exposure over the following couple of quarters, and then held the position for almost another year, before closing its 41.12 million shares stake in the fourth quarter of 2014, amid declining oil prices. The position was worth roughly $3.7 billion at the time; this means no big profits were made – although analysts have speculated that the investment generated some return.

“Exxon Mobil is a wonderful company,” Buffett said when he disclosed the exit. However, “We thought we might have other uses for the money,” he added, suggesting his firm was more interested in acquiring whole companies at the time.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Q4 11:                         XOM – Held since Q2 09 (for 2.5 y)

Q2 12:                         INTC – Held since Q3 11 (for 3Q)

Q3 12:                         CVS – Held since Q3 11 (for 1 y)

Q1 13:                         ADM – Held since Q4 12 (for 1Q)

Q4 14:                         XOM – Held since Q2 13 (for 1.5 y)

Q4 14:                         ESRX – Held since Q3 14 (for 1Q)