Buffett reduced stock purchase by 52% in first half of this year

"God of Stocks" Warren Buffett mentioned that US economy, at least in the coming months, will still be in decline. However, from an investing point of view, current US difficult economy actually created a window of opportunity for investment. US stocks are 'more attractive' as compared to a year ago. But during the first half of this year, Buffett stock purchase has reduced by quite a lot as compared to the same time period last year. Looks like he is waiting for a better opportunity.

Waiting For A Better Investment Opportunity

Buffett recently in his interview with CNBC says that although he believes that the US economy can perform better in the next 5 years, but in the coming 5 months the economic situation may get worse. The sub-prime crisis repercussions will continue to bring difficulty to the financial industry and the economy. His housing development businesses are also facing problems getting credits and the progress is slow.

Talking about sub-prime crisis, Buffett believes that Fannie and Freddy will not go broke easily, but this does not mean that its shareholders can escape. He predicts that if the problems get bigger for Fannie and Freddy, the government will eventually has to step in and help.

Also, Buffett thinks that more banks will go broke, especially those which have a lot of involvement in the housing market. But the FDIC will provide the necessary deposit insurance to prevent the bank from facing mass cash withdrawal.

When talking about investing, Buffett says that from another angle, current bad economic situation in the US economy presents investing opportunities. Stock prices are 'more attractive' compared to a year ago.

Reduction In Stock Purchase

Berkshire's recently announced second quarter financial report shows that currently the company have in cash and assets worth 35.456 billion US dollars, about 315 million less compared to December 2007.

From data provided by Bloomberg, in the first of this year, Buffett sold of 1.76 billion US dollars worth of stocks and bought in 5.51 billion US dollars worth of stocks. In the same time last year, Buffett bought in 11.5 billion US dollars worth of stocks and sold 20.9 billion worth of stocks.

The amount bought by Buffett this year has reduced by about 52%, which may hint that Buffett expects there is possibility of further decline in the US stock market.

On 14 August Buffett showed his latest portfolio. Ending 30 June, Berkshire has about 3.2 million shares of NRG Energy Inc. At the same time, Buffett reduced his stake in Anheuser- Busch Cos. from 35.6 million share in March to 13.8 million shares in June, slashed by 61% before the brewer agreed to be purchased by InBev NV.

On the day the news of Buffett increasing his stake in NRG Energy Inc is released, the share price went up by 4%. Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares says that NRG Energy Inc is US Texas state second largest electrical enterprise. Energy price has risen 24% comparing to same time last year. Demand for electricity is still high. To Buffett, increasing stakes in electrical stocks or public utilities stocks is quite reasonable and NRG Energy Inc quite matches his investing principles.

Buffett, also added to stakes in refrigeration-equipment maker Ingersoll-Rand Co. and Sanofi-Aventis SA, France's largest drugmaker.

On 21 August Buffett says that in the second quarter this year, he finally spent $3.98 billion on equities. The purchases disclosed may have cost Buffett about $260 million all told if he bought the shares at their highest second quarter prices. Berkshire also increased its holding of American depositary receipts in Sanofi-Aventis by 8.8 percent to 3.9 million. So what did he buy with the rest of the 3.6 billion US dollars?

Said Gerald Martin, a finance professor at American University in Washington that considering in May where Buffett made a trip to Europe (Germany, Switzerland, Spain and Italy) to source potential buyouts, he could have invested outside of US.

No Interest In Alberta, Yet

Buffett also clarified that last week he and Bill Gates trip on 18 August into northeastern Canada Alberta on Monday to take a look at the oilsands does not mean that he or Berkshire is interested.

The trip aroused a lot of guessing by investors. The Horizon oilsands development project visited was owned by Canadian Natural. Amount invested was about $9.3 billion Canadian dollars. The project is expected to go into commercial operation before the end of the year.

Analysts says that the Canadian oilsands offers a secure supply of oil for the United States. A source said that Buffett and Gates recently have been understanding about the Canadian oilsands situation. The visit is to satisfy "their own curiosity" but also "with investment in mind."

Because of the high cost involved in the development of oilsands, it still cannot compare to the mainstream crude oil supply. But with the recent rise of the crude oil price, it makes the development of oilsands economically viable. Analyst estimate that to extract oil from oilsands in Canada, each barrel would be about 35 to 45 US dollars. Comparing to current crude oil price, extracting oil from oilsands can be profitable. Some big oil companies have already started to work on the oilsands in Canada. This makes Canada becoming one of the few countries who can increase oil supply at times of tight oil supply situation.

Analysts estimates that Alberta's oilsand contains about 1.8 trillion barrels of oil. And the Horizon project contains about 175 billion barrels of oil. Canada's northern region will add about 100 billion Canadian dollars in investment to work on the oilsands development planning in 2015 to produce about 2.8 million barrels of oil per day.

Another energy analyst says that although the rise in oil price has caused people to drive less, but in the stock market, it has no impact to the oil related stocks superb performance.

Reseachers have said that if investors were to follow Buffett's portfolio, especially those companies that he is interested in, in the past 30 years, the yearly returns can be around 25% which is two times the rise in S&P 500 index.