Buffett May Not Have Sold JNJ

February 18, 2009 by Joe Ponzio

In its recent end-of-quarter filing, Berkshire Hathaway reduced its stake in Johnson & Johnson by 54%. As is often the case, the media automatically assumed that Buffett turned sour on Johnson & Johnson and was dumping the stock. Before you run off and sell 50% of your JNJ stake because Buffett is allegedly dumping his year-and-a-half old investment in the company, let’s look at the sale logically.

I’m going to quickly run through the latest filing so that you can ignore the noise going forward. First, let’s look at the “reporting entities” in the filing. For Berkshire, there are 21 reporting entities on this filing which means that holdings listed on the 13F-HR include decisions made by…and not made by…Warren Buffett.

If you actually look at the filing, you’ll see the list of entities reporting in this filing. Buffett. Blue Chip Stamps. GEICO. Wesco. And a number of other entities, some of which have their own investment managers, portfolios, and decisions.

Later in the filing, where the positions are reported, Column 7 itemizes the “Other Managers” – the entities or people that were involved in making the decision to hold those securities. As Chairman of Berkshire, Buffett is listed on every position. Beyond that, the positions are reported in groups based on who made decisions and/or holds the position.

When Buffett Moves Money, He Moves Money

Rather than immediately assuming that Warren Buffett is shedding his Johnson & Johnson position, let’s see the changes to the portfolio based on the “Other Managers” and entities that hold the stock:

What we see here is that National Indemnity, OBH Inc, BH Columbia, and Columbia Insurance reduced their stakes in Johnson & Johnson. Other entities directly controlled by Buffett and Munger – for example, Berkshire Hathaway itself and Wesco Financial and subsidiaries – did not sell a single share of JNJ.

When Buffett is buying or selling stock, he typically does so in bits and pieces through various entities in an attempt to mask his purchases and sales for a while. In this case, large sales were made by a few insurance subsidiaries rather than a “sneaking in or out” move.

Did Buffett Sell Johnson & Johnson?

Maybe. Maybe not. Time will tell as we won’t see another 13F-HR for three months. Still, I think it’s premature to say that Buffett is dumping Johnson & Johnson based solely on the amount of shares controlled, directly and indirectly, by Berkshire Hathaway, especially when some of the entities he directly controls with little or no outside influence did not sell a single share in the last quarter.

Regardless of what Buffett did or didn’t do, buying or selling JNJ based on his 13F-HR or the noise in the media is a poor investment strategy. If you want to do that, buy Berkshire Hathaway stock and put it on the shelf.

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