Many investors hang on every word that Warren Buffett says. But if you're looking for interesting stock ideas based on Buffett's principles, you don't have to settle for just the stocks he owns. It's also worth taking a look at successful money managers who've invested substantial assets into Berkshire Hathaway (NYSE: BRK-A).
Following the Oracle
By now, everybody knows what moves Berkshire made during the second quarter. Sales of shares in oil company ConocoPhillips (NYSE: COP) gave Buffett enough cash to add to holdings of Johnson & Johnson (NYSE: JNJ). If you make moves based on Buffett's, then you're already way late to the game.
A number of mutual funds, however, hold substantial amounts of Berkshire stock. Here are just a few:
| Fund | Assets in Berkshire Hathaway | 1-Year Return | 10-Year Average Annualized Return |
|---|---|---|---|
| Sequoia Fund (SEQUX) | 23% | (12%) | 3.6% |
| Clipper Fund (CFIMX) | 12% | (16.8%) | 1.7% |
| Oak Value (OAKVX) | 7% | (11.4%) | 1.1% |
| Weitz Partners Value (WPVLX) | 10% | (5.6%) | 2.1% |
Source: Morningstar.
Since each of these four funds follows a distinctly different path in emulating the Oracle of Omaha, let's take a closer look to see what investing secrets they may hold.
Comparing the funds
Sequoia's ties with Buffett go way back, as longtime friend Bill Ruane managed the fund until his death in 2005. Ruane is reputedly the only money manager to whom Buffett ever referred his own former clients. After the fund started in 1970, Ruane did phenomenally, and the fund closed to new investors in 1982. The fund stayed closed for more than 25 years before reopening just last year. After outperforming the S&P by 10 percentage points in 2008, the fund has lagged a bit so far this year. But holding a wide variety of stocks like The TJX Companies and Whole Foods Market (Nasdaq: WFMI) certainly hasn't hurt Sequoia's performance lately.
Buffett has reportedly said that the Clipper Fund comes close to his own investing style. But unlike Sequoia, Clipper Fund's Chris Davis hasn't shied away from financial stocks lately. Alongside his share in Berkshire, you'll also find American Express (NYSE: AXP) and Goldman Sachs (NYSE: GS) among top-performing holdings this year. With a relatively concentrated portfolio, it's clear that Clipper is abandoning neither Buffett's philosophies nor its own value principles.
The Oak Value fund may not be as well-known as some of the other Buffett followers, but its managers still follow his teachings closely. The fund's managers first look for businesses with sustainable competitive advantages, and only then drill down to compare intrinsic value with current share prices. Currently, Oak Value is finding opportunities in consumer goods stocks, with big holdings in several high-end companies including Tiffany and Coach (NYSE: COH).
Finally, Weitz Partners Value, which is also based in Omaha, is managed by Wally Weitz. Like Buffett, Weitz got started by creating private investment partnerships. But rather than building his own corporate empire, Weitz opened several mutual funds to broaden his offerings to share his investment success. Investments in Cabela's and Liberty Media have vaulted the fund higher in 2009.
Similar, but not the same
The nice thing about all these funds is that while each one shares an interest in Berkshire Hathaway and the investment style of Warren Buffett, they also take unique approaches to the way they invest. That serves as an excellent reminder that while value investing may seem like a simple, easy-to-follow strategy, there are actually a huge number of different ways you can structure a value-based portfolio.
If you follow what Warren Buffett says and does -- and I think it's a good idea -- it's always nice to see how others are reacting to the same things you see and hear. By considering the alternative opinions of the fund managers who believe Buffett's philosophy strongly enough to invest substantial portions of their clients' assets in Berkshire stock, you'll get a gut-check on the strength of your own value investing convictions.
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