Current Stock Holdings of a Legendary Investor

Warren Buffett says “our favorite holding period is forever” and yet he sold eight stocks during the fourth quarter of 2010. It was surprising that Berkshire hadn’t made any new purchases during the fourth quarter. Todd Combs must still be going through orientation. Why didn’t he buy at least some of the companies he held in his hedge fund? Anyway, the star of this 13F filing isn’t Todd Combs. It’s Lou Simpson, who retired at the end of last year. It’s crystal clear that Warren Buffett made Lou Simpson sell all his stock picks. Buffett was probably never comfortable with Simpson’s stock picks, so he got rid of those stocks even if it meant changing his “Rule Number 4: Our favorite holding period is forever”. Here is how those 8 stocks performed:

Company Ticker 2011 Return Value (Millions)
Bank of America (NYSE:BAC) 10.7% 66
Becton Dickinson & Co. (NYSE:BDX) -3.8% 140
Comcast Corp (NASDAQ:CMCSK) 9.1% 3
Fiserv Inc (NASDAQ:FISV) 6.5% 210
Lowes Companies Inc. (NYSE:LOW) 0.5% 145
Nike Inc (NYSE:NKE) 0.9% 292
Nalco Holding Co. (NYSE:NLC) -14.4% 155
Nestle NSRGY -9.1% 182

The weighted average return for Lou Simpson’s 8 stock picks were -1.7% since the end of 2010, vs. SPY’s 5.9%. So, Berkshire Hathaway investors avoided an underperformance of 7.6 percentage points for a total portfolio value of $1.2 Billion. Of course one shouldn’t judge the performance of a portfolio based on a few weeks’ performance. Insider Monkey, your source for free insider trading data, calculated Lou Simpson’s 2010 performance as well. These eight stocks had a weighted average return of 20.2% beating the S&P 500 index by 5 percentage points. The same portfolio had a 37.5% return in 2009, beating the S&P 500 index by more than 10 percentage points. These stocks lost 25.1% in 2008 and managed to beat the S&P 500 index again by more than 10 percentage points.

It’s clear that these were nicely picked stocks that managed to beat the market by a huge margin over the past 3 years. But why did Warren Buffett sell these stocks now? It seems Lou Simpson’s alpha is actually higher than the rest of Berkshire Hathaway’s stock pickers.

There were a few changes in Warren Buffett’s other holdings. He added 6.2 million shares of Wells Fargo (NYSE:WFC). He also sold around 200,000 shares of Bank of New York Mellon (NYSE:BK) and more than 450,000 shares of Moody’s (NYSE:MCO).

Company Ticker Value (Million) Return
Coca Cola (NYSE:KO) 13154 -3.3%
Wells Fargo (NYSE:WFC) 10618 9.1%
American Express (NYSE:AXP) 6507 9.4%
Procter & Gamble (NYSE:PG) 4938 1.4%
Kraft Foods Inc. (NYSE:KFT) 3315 -2.7%
Johnson & Johnson (NYSE:JNJ) 2636 -1.9%
Wal-Mart Stores Inc (NYSE:WMT) 2105 3.3%
Wesco Finl Corp. (AMEX:WSC) 2101 5.4%
ConocoPhillips (NYSE:COP) 1982 5.1%
US Bancorp (NYSE:USB) 1862 1.8%
Washington Post (NYSE:WPO) 759 -1.8%
Moody’s (NYSE:MCO) 754 14.8%
M & T Bank (NYSE:MTB) 467 3.2%
Costco Wholesale Corp (NASDAQ:COST) 313 4.2%
USG Corporation (NYSE:USG) 287 13.5%
Torchmark Corp. (NYSE:TMK) 169 6.5%
General Electric (NYSE:GE) 142 16.6%
Sanofi Aventis (NYSE:SNY) 131 5.0%
UPS (NYSE:UPS) 104 4.5%
GlaxoSmithKline (NYSE:GSK) 59 -2.2%
Bank of NY Mellon (NYSE:BK) 54 6.8%
Exxon Mobil (NYSE:XOM) 31 13.9%
Ingersoll-Rand Company (NYSE:IR) 30 0.8%
Gannett Inc. (NYSE:GCI) 26 13.1%
Comdisco Holding CDCO 14 -2.8%

The weighted average return for Warren Buffett’s stock portfolio is 3.1% since the end of December, underperforming the SPY’s 5.9%. These stocks slightly underperformed the SPY both in 2009 and 2010. Previously we showed that Warren Buffett’s alpha was zero between 2000 and 2009. Over the past two years, Warren Buffett’s portfolio didn’t even manage to beat the SPY (NYSE:SPY).

This is a guest post written by Insider Monkey.

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