Series: The Inside Edge: How the Rich and Well-Connected Exploit Investment Advantages
Top executives and investors who are privy to key information enjoy uncanny results, according to trading and tax records in leaked IRS data.
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It was the kind of endorsem*nt most companies dream of. Berkshire Hathaway CEO Warren Buffett, the legendary investor known as the Oracle of Omaha, repeatedly sang the praises of Wells Fargo in an interview with Fortune. The bank, Buffett said, “has come closer” to an effective business model “than any other big bank by some margin.” He detailed the ways in which Wells Fargo was more valuable than it seemed and compared its chair to Walmart founder Sam Walton.
The interview was published on April 20, 2009. Banks were still reeling from the financial crisis, stock markets were turbulent, and Buffett was the kindly white-haired billionaire who had assured Wall Street, the U.S. government and the public that America would be just fine. It was Buffett who had proposed the idea that turned into the $250 billion federal bailout that had propped up America’s banks (including Wells Fargo).
Berkshire was already one of Wells Fargo’s largest shareholders, and Buffett was so influential that, Fortune noted, he had “caused a 20%-plus jump in Wells shares” the previous month “simply by expressing confidence in the bank on TV.” After the Fortune interview appeared, a similar pattern ensued: Buffett’s comments rippled across financial media, eagerly lapped up by the legion of investing fans who followed his every move. By April 24, Wells Fargo shares had jumped 13%.
That day, Buffett privately sold off $20 million worth of Wells Fargo shares in his personal account.
It has long been known that Buffett keeps a personal stock portfolio, separate from his company’s holdings. But what’s inside of it has always been a closely guarded secret. Buffett’s hand-picked biographer, Alice Schroeder, told ProPublica that he gave her access to nearly everyone and everything in his life — except his personal investing records.
Over the years, Buffett has been unequivocal about one aspect of his personal portfolio: He has repeatedly said he steers clear of trading stocks that his company is trading. “I can’t be buying what Berkshire is buying,” he has said. Doing so, he stated on another occasion, would pose a “conflict” of interest. If he buys a stock before Berkshire does, for example, he could be enjoying a better stock price than his shareholders, since a big stock purchase by Berkshire will tend to increase prices.
But roughly two decades of Buffett’s personal trades were included in a leak of IRS data obtained by ProPublica. Those records show that the nation’s best known and most respected investor has sometimes said one thing in public and done another in private.
On at least three occasions, Buffett has traded stocks in his personal account in the same quarter or the quarter before Berkshire bought or sold shares of the same companies, doing so before the conglomerate’s moves were disclosed to the public.
These trades may violate Berkshire’s ethics policies, authored by Buffett himself, which require “all actual and anticipated securities transactions of Berkshire” be publicly disclosed before Berkshire employees can trade the stocks personally.
Overall, Buffett’s records show he reported at least $466 million in personal stock sales between 2000 and 2019. That’s a relatively modest sum for a person reported to be worth more than $100 billion (and indeed the records reveal vastly more trades in government and corporate bonds than in stocks). But the records include only securities he sold, not those he bought and held, so the portfolio is likely larger than ProPublica could see.
The trading records offer an unprecedented window into how America’s most iconic investor manages his personal portfolio. Buffett did not respond to detailed written questions about his personal trades.
Buffett has in the past described the process of finding a stock for his personal account in amorous terms: “It’s like finding a new girl to me.” But, at a Berkshire shareholder meeting in 2016, he waved away speculative questions about his personal trading by saying that the vast majority of his money is in shares of Berkshire, not his personal account, and that he planned to donate almost all of his billions in wealth to charity anyway.
In February 2012, Buffett was asked on CNBC why, despite his praise of JPMorgan Chase, Berkshire did not invest in the bank. “I’ll let you in on a little secret,” Buffett responded. “I own some shares of JPMorgan.” He explained that because Berkshire didn’t own any shares of the giant bank, “it’s one that I can buy without having any possible problems about conflict.”
The question came up a second time at a Berkshire shareholder meeting that year, and Buffett gave almost the same answer. He said he preferred Wells Fargo, but Berkshire was “buying Wells Fargo stock and that takes me out of the business of buying Wells Fargo,” so he bought shares of Chase for his personal account because it was his second choice.
“That’s one of the problems I have,” he said. “I can’t be buying what Berkshire is buying and I’ve got some money around and therefore I go into my second choices or into tiny little companies.”
Only a year earlier, the issue of personal trading had given rise to a rare scandal for Berkshire Hathaway. Buffett’s heir apparent at the time, David Sokol, resigned under a cloud after making personal stock trades, which Berkshire ultimately determined had violated its insider trading policy. Berkshire is a sprawling conglomerate, with $300 billion in 2022 revenues, that wholly owns some businesses and has stakes in a number of publicly traded companies. Sokol, who denied his trades were improper, had purchased shares of a chemicals company that Berkshire acquired soon after.
“Sokol episode could dent Berkshire reputation,” read one headline. “Say it ain’t so, Warren,” read another.
In the wake of such articles, Buffett defended his company’s personal trading policies and the firm’s controls to ensure those rules were followed. “I don’t think you’ll find that the problem is in the rules. The problem is in people breaking the rules,” he said. “People break rules...the job is to find them.”
He distinguished between an employee long holding a stock that Berkshire then invests in, which he defended, and making a move in a stock about the same time Berkshire did, as was the case with Sokol. Buffett was asked if there were other instances of anyone at Berkshire trading in a way that might create even the perception of potential frontrunning — the practice of investment managers trading stock with the knowledge that their employers were planning to trade the same security. “I’ve never seen it,” Buffett said. “I have no evidence of it.”
Ultimately, the Sokol episode left no permanent blemish on Buffett, whose reputation for probity is as stellar as his reputation for investing acumen. Indeed, Buffett has had a credibility no other investor could match — a homespun billionaire, with plain-spoken aphorisms and a handshake you could trust.
Buffett’s reputation in the public mind blossomed in the early 1990s after he was chosen to clean up a mess at Salomon Brothers. In the wake of the investment bank’s involvement in rigging auctions for treasury securities, Buffett was called to testify before Congress. With the cameras rolling, he assured lawmakers that ethical lapses would not be tolerated under his watch. “Lose money for the firm, and I will be understanding,” he testified. “Lose a shred of reputation for the firm, and I will be ruthless.”
Ever since, Buffett has spoken out harshly against anyone who would trade reputation for profit, repeating the adage that no one should do anything in private they don’t want to see on the front page of a newspaper.
The remarkable returns he delivered for Berkshire investors gave him his golden aura, but he also cultivated the image of a selfless and ethical billionaire. He pledged the vast majority of his wealth to charity. And he has called for higher tax rates for the wealthy, earning plaudits from President Barack Obama and others, even though the kinds of reforms he pushed would have largely left his fortune untouched.
In October 2012, Buffett made another noteworthy personal trade. Over several days, he sold $35 million worth of Johnson & Johnson shares. At that point, Berkshire had effectively revealed that it, too, had sold Johnson & Johnson shares.
Berkshire did this in the normal manner. It did not issue a press release announcing its plans to sell the shares. Instead, it filed a report (as many investment managers are required to do) listing its holdings as of the end of the quarter. The public could then compare the holdings in that filing to the holdings in the previous quarter. In that way, ardent Berkshire followers could determine that the company had sold shares at some point — no date is specified — during the quarter.
That filing did not disclose what was to come: namely, that Berkshire would sell millions more shares in the two quarters that followed. That seems to put Buffett’s personal sale at odds with Berkshire’s policy. That document states that if an employee is “aware that Berkshire has taken or altered a position in a public company’s securities or that Berkshire is actively considering such action, trading in any securities of such public company” is “expressly prohibited prior to the public disclosure by Berkshire of its actions.” The policy categorized awareness of Berkshire’s trades as “material nonpublic information,” a necessary component of an insider-trading claim.
In this instance, Buffett’s sale of Johnson & Johnson avoided a small dip in the days that followed. But over the ensuing months, the shares climbed significantly.
In another instance, in August 2009, Buffett appeared to move, in his personal portfolio, in the opposite direction of Berkshire’s portfolio. He sold $25 million of Walmart stock in his personal account, even as Berkshire almost doubled its stake (which had previously held steady for 15 quarters) during the same quarter. It’s unclear which transaction came first, but no matter the order of events, it raises the question of why Buffett made one choice for his own portfolio and the opposite choice for Berkshire’s investors. And if he knew Berkshire had or was considering making a move, and still traded, Buffett again risked violating his own insider trading policy.
The result of Buffett’s moves was anticlimactic: Walmart’s stock didn't move much in the weeks that followed this trade, but then months later rose some with the market. There’s no sign, in ProPublica’s data, that he sold Walmart shares again.
