The latest Berkshire Hathaway13F filing came out last week detailing the holding company's buys and sells, and there were a few surprises. Warren Buffett waded into Pool Corporation(NASDAQ: POOL) and munched on Domino's Pizza(NYSE: DPZ) for the first time.
These stocks definitely fit the typical Buffett investing schema in some ways, but in other ways they aren't what you might expect from the investing giant. The ways in which they are different are the key to understanding how Buffett is viewing the market right now.
1. He does seem to expect market pressure
When Buffett buys a stock, he goes big. He took a 3.7% stake in Domino's, worth nearly $550 million, a tiny fraction of the total Berkshire Hathaway portfolio. The Pool investment was smaller at 1.1% of the company, or $145 million, a negligible portion for Berkshire Hathaway.
Pool puns aside, Domino's and Pool exhibit the typical great businesses Buffett often talks about. Domino's is the largest pizza shop chain in the world, with more than 6,900 stores and $4.7 billion in trailing 12-month sales. Because it's pizza, and not filet mignon, it's resilient during economic slowdowns. It has a global brand name, not unlike Buffett's favorite consumer goods stock, Coca-Cola. It's kind of like the Coke of the pizza industry.
Pool is similarly the largest pool equipment distributor in the world, serving global locations as the predominant company in its industry. It's lesser-known than Domino's, since it's a business-to-business operation and serves an exclusive clientele, but in its field, it has a strong competitive edge as the leader. It has 440 locations worldwide and $5.3 billion in trailing 12-month revenue.
With the purchase of these stocks during a time when Berkshire Hathaway is stockpiling its largest-ever cash hoard, Buffett does look like he's sending a message. It's these kinds of resilient businesses that should withstand market instability.
2. Valuation plays second fiddle
In last year's annual shareholder's letter, Buffett paid tribute to longtime business partner Charlie Munger and credited him with providing the insight for Buffett to hone his investing approach. "Now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices," Buffett quoted Munger as saying.
Buffett is known for his value approach to investing, but Domino's and Pool aren't quite cheap, even as compared to recent averages. These are reasonable valuations. I wouldn't call them expensive. But it's clear that these fall neatly into the wonderful-businesses-at-fair-prices box.
DPZ PE Ratio data by YCharts.
These aren't bargain stocks. That might be totally fine for you, and it's certainly fine for Buffett; it's not his goal. But investors shouldn't think they are cheap stocks just because Buffett bought them.
3. You might have different priorities
Buffett, like several other billionaire investors, runs a holding company and is responsible toward his shareholders. In fact, the advice he quoted from Charlie Munger was related specifically to the at-that-time recent acquisition of Berkshire Hathaway. In other scenarios, the implication was that buying fair businesses at cheap prices might be OK or even preferable.
That may or may not be your personal investing style. But whatever your personal investing style is, it's likely to be different, and it should be different, from that of investors who are managing billions of dollars for clients. Whether or not you should buy Domino's stock, Pool stock, or any of the other 45 or so stocks in the Berkshire Hathaway equity portfolio is going to be viewed through a different prism.
For example, if you're young and you have a long-term horizon, you might want to invest in more aggressive growth stocks, which don't feature prominently in Buffett's portfolio. If you have a different day job than constant stock analysis, which is what Buffett and his team do, you may want to ignore short-term economic factors in favor of long-term opportunity. It's certainly reasonable to get inspiration from Buffett -- you won't find a poor business on his list. But then go out and do your own research and see if his picks meet your values.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Domino's Pizza. The Motley Fool has a disclosure policy.
