By: Costas Bocelli — May 20, 2020
Is "Folksy" Warren Buffet Really a Wolf in Sheep's Clothing?
We should all be wary of the "wolves" of Wall Street.
That's just common sense, right?
But... would you ever think that Warren Buffett, the folksy, amiable billionaire from Omaha Nebraska is one of those wolves?
Actually, he’s worse. Buffett is a stone cold killer, and if you’re not careful, you could become his next victim.
Don’t believe me? Well then, let me give you a timely example of how Buffett preys on the unsuspecting.
It’s widely known that Buffett had huge positions in the airlines.
Whether he wanted people to know it or not, large institutional investors are required to disclose their holdings on a quarterly basis by the Securities and Exchange Commission (SEC).
The quarterly filing is known as an SEC Form 13F.
And large institutional investors, including Buffett, must disclose their equity holdings at the end of each quarter. But they get up to 45 days after the end of the quarter to file.
So coming into the New Year, Buffett had a huge stake in Delta Airlines (DAL) as well as several other U.S. based commercial airline carriers.
(Click any image to enlarge)
Everything was running smoothly until the coronavirus pandemic slammed the global economy.
Travel... Leisure... and the Hospitality sectors were the first to get thrashed.
The Airlines began to see the forces of Supply take more and more control.
Readers who subscribe to Sector Prophets, our data driven analytics product, were tipped off that large institutional investors were distributing shares in the airlines.
In fact, on February 24th, Sector Prophets generated a “Sell Signal” in the Aerospace Airlines sector.
Now, here’s where things get interesting...
On March 3rd, about a week later, we learned that Buffett had added to his Delta Airlines position. In a disclosure, Buffett revealed that he had bought 976,000 additional shares of stock.
Of course, the airlines immediately jumped on the news thinking that if the world’s smartest investor is doubling down, then it must be a good time to buy.
What they didn't know was that Buffet was a wolf in sheep's clothing.
Shortly thereafter, shares cratered more than 50% as airlines remained mostly Earth-bound during the health crisis. Mom and pop investors that followed Buffett into Delta Airlines have gotten pummeled.
Now let’s get back to Warren Buffett -- good ole’ Mister Folksy.
As it turns out, Buffett was quite active trading airlines stocks in the first quarter of this year. True, he bought 976,000 shares of Delta stock.
But shortly thereafter Buffett sold 71.9 million shares of Delta stock and unloaded his entire position! He also dumped all of his other airline stocks too.
He didn’t mention that until May 3rd, about a month after the first quarter closed. Remember, Mr. Buffett has up to 45 days to make his equity positions public.
See what’s going on here? Mr. Buffett tells the world he’s adding to the position.
But that small addition was nothing more than a smokescreen. Worse, it was a means of luring in as many buyers as possible so he could offload his massive position in Delta airlines.
You see, it’s not easy to unload 71,000,000 shares in the marketplace.
So if you followed Buffett’s token purchase into DAL in early March, when the stock was trading in the $40’s... there’s an excellent chance that Mr. Buffett was also the one selling it to you!
Now here’s the thing... Mr. Buffett did nothing illegal. It’s all perfectly legit.
But when ordinary investors cry that the stock market is a rigged game, the real truth is that they're simply following the wrong information.
Again, Mr. Buffett is a Wall Street wolf in sheep’s clothing. (You don’t become one of the richest people if you’re not.)
Now here some great news…
The real secret to being a successful investor is to pay attention to price action and not to the public statements or 45-day-old disclosures from large investors.
That’s a sucker’s game.
If you stick to what price is telling you, then you will be light years ahead of the game. And the best way to go about it is getting in tune with the “True Market”.
Fortunately we have Sector Prophets to rely on to show us which sectors are the strongest and worthy of our investment dollars…
…and which are the weakest. Which are the segments of the market you should avoid.
In Sector Prophets, it’s like you have your own private 13F filing portal where each large institutional investor is compelled to report his (or her) current equity holdings at the close of business every day.
Now that’s powerful information, wouldn’t you say?
And right now, the smart money is piling into the Biotechs sector, a subgroup of the broad Healthcare sector.
For those looking to gain bullish exposure to the stock market, the Biotechs sector is showing many signs of technical strength.
For example, the sector is on a “Buy" signal on its Sector bullish percent chart.
If you’re not familiar with a Sector bullish percent chart, no worries. Just focus on the current column all the way toward the right.
When the chart is in a rising column of X’s (like it is now), it tells us that more and more stocks within the Biotechs sector are breaking above key levels of technical resistance.
In other words, prices are being pushed up because of strong demand.
And we know the kind of folks that have the buying power to move the needle just enough to bring it to the attention of a select few.
We know because Sector Prophets delivered the “hidden 13F” to our readers back on May 11th.
Investors that prefer to gain bullish exposure to the Biotechs sector using a diversified approach can look to the SPDR S&P Biotech ETF (XBI).
Investors looking to gain a more granular exposure could look to individual stocks within the sector that possess strong traits of technical strength.
We’ll share three of them that meet the criteria courtesy of Sector Prophets.
- Seattle Genetics (SGEN)
- Immunomedics (IMMU)
- Emergent Biosolutions (EBS)
For the self-directed investor that wants to be more wolf than sheep, there’s no better way to take control of your finances than by seeing -- clearly -- where the wolves are putting their money...
And then following -- and profiting from -- their moves.
Until next time,