Maybe there's such a thing as a Think-Like-Buffett Bounce.
Berkshire Hathaway Inc. announced May 15 that it owned $404 million worth of Chicago Bridge & Iron, a Netherlands engineering and construction company traded on the New York Stock Exchange.
The 6.5 million-share purchase is too small for CEO Warren Buffett's focus but just right for his lieutenants, Todd Combs or Ted Weschler, one of whom likely initiated the purchase.
Being favored by a money manager working down the hall from Buffett apparently is enough of a recommendation to get the attention of some other investors. Their logic: If a close-by-Buffett-style investor thinks Chicago Bridge is a good investment, maybe I should buy some, too.
Chicago Bridge shares closed at $57.76 before Berkshire's announcement, and a week later sold at a record $64.91, an increase of 12.4 percent, before settling at $62.77 on Friday. Volume was up 50 percent the first day, then reverted to its average.
The most recent true Buffett Bounce was in August 2011, when Buffett announced that Berkshire would invest $5 billion in Bank of America, and B of A's stock price jumped 26 percent.
The bounce effect is one reason to keep stock purchases secret as long as possible. If Buffett, Combs and Weschler plan to invest in a stock, they want the price to be as low as possible so they can end up with more shares for the amount they invest.
For a Chinese view of Berkshire's annual shareholders meeting, check this out.
Danwei Wang reported for Wall Street Multimedia Inc. of New York City, part of a Beijing-based news organization.
Most of the coverage is in Chinese, but video is video and photos are photos, and a segment on The World-Herald's “Oracle & Omaha” book includes an interview with the author (ahem) in English, with Chinese subtitles.
This link takes you to the “Oracle” segment (headlined with Chinese characters that say, “Omaha Herald reporter interviewed), and this one to Wang's other coverage of the Berkshire meeting and related events.
You, too, can bid on a lunch with Buffett in a charity auction that starts at 9:30 p.m. CDT next Sunday and concludes at 9:30 p.m. CDT on June 7.
Bidding starts at $2,500, and the prize is a meal for up to eight people with Buffett. Proceeds will benefit the Glide Foundation, which fights poverty in San Francisco and was a favorite cause of Buffett's late wife Susan Thompson Buffett.
Over the past 13 years, the annual auctions have raised nearly $15 million for Glide, which is marking its 50th anniversary.
Last year's record winning bid, by an anonymous person or group, was the numerically intriguing $3,456,789. Will this year's winner pledge $4,567,890?
The Smith & Wollensky steakhouse in New York City agreed to host the lunch, donating $10,000 to Glide. But in 2010 and 2011, winning bidder Ted Weschler opted for lunch at Piccolo Pete's Restaurant in Omaha, a Buffett favorite. Soon after, Buffett hired him to manage some of Berkshire's investments.
To pre-qualify to bid on the eBay auction, go to GlideLunchWithWarrenBuffett.com.
Kenneth Shubin Stein, founder of Spencer Capital Management, wonders if Berkshire is really the nation's longest-running applied psychological experiment.
His essay, posted on ConcurringOpinions.com, argues that Buffett and Berkshire Vice Chairman Charlie Munger teach simple investing principles, but for most people applying their ideas goes against human nature and psychology.
“So most of us construct logical reasons why applying their ideas are not practical, or because their situation is different, or for any number of other reasons,” writes Stein, who also has a medical degree. “Ultimately, most of these arguments are justifications for not doing things that run counter to our own psychological tendencies.”
For example, he writes, Buffett doesn't look at the stock price of a potential investment and instead begins by learning about the company, reading reports and other information to form an opinion about its value and durability.
“Buffett's approach avoids the powerful psychological bias of anchoring to a price first, and then trying to move away from it as he learns more about the company,” Stein writes.
Another Buffett-Munger technique: They resist the urge to act. It's human nature, Stein writes, to make a fast decision when uncertainty creates a sense of discomfort. Then the urge to be consistent kicks in, making it difficult for people to change their minds and reconsider their rash decisions.
Instead, Buffett and Munger don't act unless it's an “obvious no-brainer,” thus avoiding serious mistakes, Stein writes, adding:
“They have become very good at saying no to investment opportunities, and therefore they are well-equipped to recognize a great deal. It looks obvious when compared to all the things they turned down, and they have the capital to act. Neither the context nor the capital might be available if they had acted sooner.”
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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