A portrait of Warren Buffett by artist Michael Israel

Billionaire Warren Buffett likes to say his favorite length of time to hold a stock is “forever.” That is a good thing because some of his more recent investments are not making him money in the short run.

The man heralded as the “Oracle of Omaha” tells acolytes he evaluates companies based on their stability, their competitive advantage and what he thinks they will be worth years into the future, instead of trying to find the moment when their stocks are at their lowest. The declines in his recent equity purchases suggest he could have waited before taking the plunge.

“People like to second guess Warren Buffett, but it is not just a flip question to ask if he should have kept his powder dry a bit longer,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of Ram Partners LP, a hedge fund in Greenwich, Connecticut. “He has paid dramatically higher prices than where some of them are now trading at, so you have to wonder if he was too quick on the trigger.”

Buffett, who makes most of the investment decisions at Omaha, Nebraska-based Berkshire, was not immediately available to comment. He is required to disclose changes to the firm’s equity portfolio every three months. ‘Buying too soon’

The latest report, covering the period ended December 31, is scheduled to be filed this week. It will include purchases and sales made during the worst quarter for the S&P 500 in more than two decades, with the index dropping almost 23 percent.

In separate filings, Berkshire said it spent US$9.45 billion on equity securities in the first nine months of last year, buying shares in companies including Eaton Corp., a Cleveland-based maker of circuit breakers and fuel pumps; Ingersoll-Rand Co., a refrigeration-equipment manufacturer incorporated in Bermuda; and US Bancorp in Minneapolis. All of those purchases are now underwater.

“In hindsight, it is easy to see that he was buying too soon,” said Michael Yoshikami, president of YCMNet Advisors in Walnut Creek, California, who manages $800 million and owns Berkshire shares. “He would probably be the first to tell you that. But he and pretty much everybody else had no idea how bad things were going to get.”

US Bancorp stake

Berkshire became US Bancorp’s biggest shareholder as Buffett bought the majority of his stake in a period when the stock never fell below $29.09. He added shares in the third quarter of 2008, during a three-month span when the stock’s minimum price was $20.57, data compiled by Bloomberg show. The bank reported profit declines for eight straight quarters. Its stock closed Tuesday at $14.40 in New York Stock Exchange composite trading.

Berkshire increased its Ingersoll-Rand stake sixfold in last year’s second quarter, when the shares never fell below $36.54. Since acquiring the stock, which gives Buffett about 1.8 percent of the firm, the price has fallen more than 50 percent to Tuesday’s closing price of $15.59. Profit at Ingersoll, which makes Thermo King and Hussman refrigeration equipment, has fallen for three straight quarters.

Buffett first bought Eaton shares between July and September of last year, a period in which the stock never fell below $52.32. The company said in January that it was cutting 5,200 jobs and forecast that it would “break even” in the first quarter. The shares closed at $43.02 Tuesday.

Berkshire’s decline

“He is not the kind of guy who goes around kicking himself, but it is pretty clear that some of these are much, much cheaper than when he thought they were a good deal in the first place,” said Gerald Martin, a professor at American University in Washington who has studied Buffett’s investment history. “He knows better than anyone that the economy goes in cycles, so when he buys into something he is not too worried about trying to figure out where the bottom is.”

Berkshire’s stock has declined 36 percent in the past year, through Tuesday, and profit has fallen for four straight quarters.

Buffett has said he is also spending his own money to buy US stocks as prices decline amid the worst financial crisis in 75 years, switching holdings from government bonds.

“Most major companies will be setting new profit records 5, 10 and 20 years from now,” Buffett said in a column in the New York Times in October, warning that investors who sat on the sidelines were ignoring advice from hockey great Wayne Gretzky, who said, “I skate to where the puck is going to be, not where it has been.”

Other opportunities

Buffett is finding other opportunities for Berkshire amid the economic turmoil, funding buyouts, buying preferred shares in private deals and acquiring whole companies. In April, he committed $6.5 billion to help McLean, Virginia-based candy manufacturer Mars buy chewing gum maker Wm. Wrigley Jr. Co. In September and October, he agreed to spend $8 billion on preferred shares of General Electric Co. and Goldman Sachs Group Inc. that pay 10 percent annual interest.

Later deals have yielded even more favorable terms. In the past week Buffett agreed to buy preferred shares in Milwaukee- based motorcycle maker Harley-Davidson Inc. that pay 15 percent and Sealed Air Corp., an Elmwood Park, New Jersey, packaging company, paying 12 percent.

“I would not be surprised if there is not much news from the fourth quarter,” Yoshikami said, referring to Berkshire’s next stock-purchase disclosure. “When you can get a 10 percent return that is virtually guaranteed on preferred shares, why buy stock? People complain that Buffett is less adaptable than he used to be, but that is not true. I bet he has learned from some of these recent mistakes.”

Source: Bloomberg