Warren Buffett caused a stir when he made his first big move on the Australian market in a 50-year career as head of Berkshire Hathaway.
IAG’s price jumped last month after Buffett put $500 million into the insurance group for a 3.7% stake.
And immediately talk started: what next in Australia for the world’s greatest investor?
At Credit Suisse, analysts Hasan Tevfik, Gretel Janu and Damien Boey took a deep look at Buffett’s track record in investments outside the US and what he may be looking at now in Australia.
“We were a little shocked to find Buffett suffered an element of DROTUS (Dull Returns Outside the US),” the analysts say in a note to clients. “As far as we could work out Buffett has annualised at a 11% rate on his international holdings.”
Compare this to the US stock holdings which have delivered close to a 20% return each year.
The Credit Suisse team looked at Buffett’s criteria of picking US stocks and applied it to Australia.
They call it the Bufferoo portfolio. It picks from the ASX 100 and has a maximum nine stocks which must have a strong, stable return on equity, reasonable valuations, sound balance sheets and be growing businesses.
The portfolio trades once a year, on June 30. This week Bufferoo was a buyer of Ansell, Challenger, Caltex and Lend Lease. And that will be it until June 30 next year.
The Credit Suisse team says: “Like Buffett would be, we were happy as these stocks have de-rated from 16-17x (P/E) three months ago to 14x now. We now go back to quiet reading and thinking until the portfolio trades again in 12-months’ time.”
Details on the Bufferoo portfolio:
“When picking stocks it should come as no surprise that Buffett has a focus on value,” the Credit Suisse team says.
“He also tends to buy lower beta companies, with little financial leverage. He likes to buy into companies that have a history of solid profitability and growth — quality companies. Buffett likes to buy larger companies, smaller stocks just don’t move the needle for the behemoth which is Berkshire.”