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Translating Buffett's Latest Bets


The Oracle of Omaha sees us as a bunch of cheapskates.

Forget about what he says. If you want to learn what Warren Buffett really thinks are money-making bets, look at what the old guru is actually doing.

The greatest value investor of our time likes to portray himself as that Cherry Coke-sipping, cheeseburger-eating, down home Yankee. The truth, of course, is that nobody becomes the second richest man in the world, worth $37 billion, just by acting like a soft, cardigan-wearing grandpa.

The man is a hard, tough negotiator that doesn't suffer incompetents, says Paul Howard, a research analyst with Langen McAlenney, who covers Buffett's company, Berkshire Hathaway (BRK-A).

"He does try to be hands off with his operating managers," says Howard. "But he is a serious, astute head coach. He is not Mr. Nice Guy."

The analyst adds, "You better perform to be on his team, and he will let you know if you're not. Behind the scenes, he is pretty tough."

Or, let's put it this way: If we were face-to-face with Buffett in a dark alley, we would cut and run faster than Adrian Peterson.

So, according to the latest filings, what can we glean from where Buffett eyes investment opportunity these days?

Yesterday, Berkshire Hathaway disclosed its US equity investments as of September 30. The Oracle of Omaha talks a lot about the glowing future of our nation's prosperity, but his investments appear to indicate that he thinks Americans, looking ahead, are going to act like a bunch of spendthrift bargain hunters.

It was just earlier this month that Buffett made headlines with his $44 billion acquisition of railroad Burlington Northern Santa Fe (BNI). The story line peddled by Buffett, and his media elves, was that the move amounted to a celebratory wager on the future of the US economy.

Well, maybe. Of course, there are alternative explanations, as David Rosenberg of Gluskin Sheff points out.

"The Oracle believes that with oil prices where they are and likely to go higher, rails will grab transport share from the truckers," the noted economist and strategist wrote in a research note. "This may also be a back-door bullish call on coal."

As for the latest filing, what caught our attention is how hard the legend has now moved into Walmart (WMT).

In fact, the man nearly doubled his holdings to 37.8 million shares on September 30 from 19.9 million shares at the end of June.

Buffett would seem to be making a long-term call, in part, on the newfound frugality of the American consumer. There are those smart strategists that believe men and women, after this economic downturn, will fundamentally shift how they think about saving and spending.

This is a change that appears to transcend socio-economic status.

According to data tracker NPD Group, as highlighted in BusinessWeek, visits to fast-food restaurants declined 3% over the summer, the worst performance in decades. Your white-shoe friends aren't feeling any more carefree with their cash, as evidenced in "Global Champagne Sales Are Going Flat" in The New York Times.

A community of tight-fisted consumers would benefit discounters like Walmart. At least Buffett seems to think so.

Another noticeable change in his portfolio: a stake of 1.28 million shares on September 30 in Exxon (XOM), up from 854,490 in June.

We understand why Buffett likes Exxon, the world's largest refiner. Analysts point to its industry-leading profits and stellar financial health.

"Also, if there is inflation, which Buffett is concerned with, the price of oil goes up and that helps Exxon," says Howard.

Buffett also reported new stakes in Nestle (NSRGY), The Travelers Companies (TRV), and Republic Services (RSG). He increased his stake in Wells Fargo (WFC).

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