“Buffett’s Secret Loser”

by Travis Johnson, Stock Gumshoe | May 8, 2007 7:53 am

This one is actually a teaser for a free service — but the Gumshoe doesn’t discriminate. It’s from Investment U[1], and it’s teasing us with the name of Warren Buffett[2]’s secret portfolio holding, the one that he bought low and averaged up over the years, and recently piled on more shares of after the shares cratered.

Wow, that’s some bad grammar. Sorry.

And now that we’re still in the euphoria of another “Woodstock for Capitalists” as the Berkshire shareholders head home from the annual meeting, this seemed like an appropriate teaser to take a quick look at.

Nothing is noted about the business or the stock, other than to say that he bought it when it was under $20 and earlier “this year” it “traded up to $120” and then fell 58%.

He has been adding millions of shares as it fell, apparently.

So what’s the stock?

Buffett only has a few companies that have traded near $120 in the past year or so — including PetroChina, Posco, and M&T Bank. And some of the railroad companies he’s been associated with have also flirted with triple-digit share prices.

But the only one that has neared that price, then fallen dramatically over the last 12 months, accompanying increasing Berkshire purchases, is USG Corp.

And this is really no secret at all — the financial press was all over it when Buffett picked up a big chunk of shares in USG after it cratered (and he did own some shares prior to that), with equal parts claiming on one side that he was bats for buying in the face of a housing downturn, and on the other that he was prescient for finding a value-priced gem that everyone else hated.

The decline from near $120 to the mid-40s was extremely fast last year, but since then the volatility has really died off — the shares fought their way up to near $60 for a little while, but are now back close to where Buffett was buying it hand over fist in the mid-to-high $40s ($48 as I type this, $46 when Buffett really started piling on extra shares last summer).

So … there’s Buffett’s secret, to the best of my sleuthing abilities. Looks like the jury’s still out on this one, but you can buy it for near the price Warren was willing to pay today if you want to. Of course, I don’t know if he’d buy it at this price today, or if you should.

Enjoy. And if anyone did sign up for this “free” service, feel free to let us know if I’m wrong (or right … make that, especially if I’m right).

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