Knowing Buffett's Moves Not Always a Money-Maker

Thursday, 07 Apr 2011 03:48 PM


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Knowing what Warren Buffett is going to do a few weeks before he does it is not the sure-fire money-maker you might think.

The iconic investor and champion of ethical corporate behavior is under fire over the revelation that his presumed successor, David Sokol, bought shares in Lubrizol Corp before pushing Buffett to acquire the company.

That $9 billion deal netted Sokol a profit of nearly $3 million. It also raised questions about whether others inside Buffett's holding company Berkshire Hathaway Inc have ever bought into stocks they knew Buffett might take a shine to later.

A look back at five other high-profile deals Buffett made in the last three years shows the same kind of foresight Sokol had would have been very lucrative at some times — and at other times a losing proposition.

Reuters looked at the acquisition of railroad Burlington Northern Santa Fe in August 2009 and four investments Berkshire made in 2008 — Goldman Sachs Group Inc., Dow Chemical Co., Wm. Wrigley Jr. Co. and Chinese car maker BYD.

In each case, Reuters compared the company's share price in the first trading session after the deal was announced with its closing share price 70 days before the deal — the precise window Sokol had from his first purchase of Lubrizol shares to the announcement of the acquisition.

An investor who bought 100,000 shares of each company's stock 70 days before the deals were announced would have made money on Wrigley ($1.89 million), Burlington ($1.32 million) and BYD ($46,296).

But that same clairvoyant investor would have lost a fair bit of money on Goldman Sachs ($2.48 million) and Dow Chemical ($788,000).

In other words, getting ahead of Buffett's five biggest deal before Lubrizol was more or less a wash. But getting into Lubrizol before Buffett, like Sokol did, would have netted the investor about $3 million.

That issue — getting ahead of Buffett's dealmaking — has become a source of controversy recently for reasons other than the Sokol matter.

Prosecutors in the biggest insider trading case since the 1980s say fund manager Raj Rajaratnam got inside information from Goldman director Rajat Gupta, including a day-ahead tip that Berkshire would invest $5 billion in Goldman. Rajaratnam, prosecutors say, made $1 million on the information.

© 2014 Thomson/Reuters. All rights reserved.

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