No, Warren Buffett didn't buy Apple shares, or bid for Yahoo...

Warren Buffett - who is famously averse to technology stocks - is being reported as doing things he hasn't actually done. Currently these include buying $1bn of Apple shares and bidding for Yahoo.
Written by Jack Schofield, Contributor
Warren Buffett

Warren Buffett is possibly the world's leading investor, and the "Sage of Omaha" is widely respected for his skills and his huge financial success. It's therefore "a story" if Buffett does something, because lots of people would like to emulate that success.

Unfortunately, some stories (not here) may credit Buffett with doing things he hasn't done, and we've just enjoyed a couple of examples.

Today (Monday 16 May), the big news was that Warren Buffett had bought almost $1 billion worth of Apple shares. This was particularly interesting because Buffett has generally avoided technology stocks (except IBM) as being too risky to fit his long-term investment strategy. Indeed, Buffett's business partner, Charlie Munger, once told Reuters: "The whole world admires the achievements of Apple. On the other hand, you could hardly think of another business that is more un-Berkshire-like than Apple."

And, as a matter of fact, Warren Buffett has not bought any Apple shares. The shares were indeed bought for Buffett's company, but not by him. Berkshire Hathaway has two investment managers, Todd Combs and Ted Weschler, who control around $9bn each. One of them made the investment, as Buffett confirmed in an email to the Wall Street Journal, which reported as follows:

"Mr Buffett has said repeatedly that any smaller positions that are revealed in the quarterly filings are almost certainly those of these two investing lieutenants, and his email Monday confirmed that was again the case with Apple. He did not say which of the two men made the investment, but added that they make their picks without consulting him."

It's therefore true that either Todd Combs or Ted Weschler bought $1bn of Apple shares, but that's not such an attractive headline. None the less, a headline that says "Warren Buffett bought $1bn of Apple shares" is simply wrong.

In passing, either Combs or Weschler paid around $108 per share before Apple's last quarterly results drove the stock down to the $90s, so at this point they've made a loss. It will be interesting to see if Berkshire Hathaway buys more, because Buffett likes shares that go down over the short term. It enables him to buy more shares at lower prices, and reduces the corporate cost of share buy-backs.

When it comes to the Yahoo deal, it's also not strictly true to say that "Warren Buffett is bidding for Yahoo."

It certainly true that a number of entities are negotiating to buy Yahoo's historical web-based business, the most prominent being Verizon, which has already picked up AOL. (There must be synergies there.)

Another negotiator is a consortium led by Dan Gilbert, founder of Quicken Loans and owner of the Cleveland Cavaliers. Buffett and Gilbert are apparently friends, and according to a Reuters exclusive: "Buffett is helping finance the offer, one of the people added". The story says:

"The sources asked not to be identified because the details of the sale process are confidential. Buffett offered no immediate comment when reached by telephone. Quicken Loans declined to comment on behalf of Gilbert, while Yahoo declined to comment."

Those are the facts, such as they are.

This is not Warren Buffett "bidding for Yahoo". This is Berkshire Hathaway being ready to act as a bank by putting up some cash - and probably collecting at least 10 per cent annual interest in return. If you've ever borrowed money from a bank, you will appreciate how much commitment that may involve.

Of course, Berkshire Hathaway could end up owning some of whatever new entity is formed from Yahoo's traditional business, as it did when it financed the Heinz deal. However, Yahoo is a very long way from being the sort of stock that Buffett likes. Indeed, he has had decades to buy Yahoo shares, if he really wanted any, and has signally failed to do so.

As The Simplistic Investor notes at Seeking Alpha:

"With Yahoo, it's more likely Berkshire makes out on the financing aspect of the deal. I wouldn't imagine Buffett would want as much equity in a company like Yahoo as he did with a more predictable, steady company like Heinz. I'm sure he'd structure some deal where he gets a nice fat dividend in the form of preferred stock, likely at a higher rate than 9 percent, and some smaller portion of equity for upside."

But unless Gilbert actually outbids Verizon and the rest, it won't matter. There will be no financing deal and Berkshire Hathaway will not own any of Yahoo. Or Quicken Loans.

Disclaimer: I don't own any shares (except via my pension funds), and I don't give investment advice. What you invest in is entirely up to you.

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