He buys $100 million worth of X stock. People follow and buy $100 million worth of the same X stock, stock is now wanted and goes up in price, Buffett sells his shares and profits.
Why is this not happening?
In: Economics
It is impossible to buy $100 million worth of a single stock at once. You need to find people who are selling those stocks. If you are lucky then there may be $100k worth of stock at sale at any given time maximum. But if he buy them then everyone knows that he is looking to by those stocks and people who were only considering selling their stocks would offer them for sale at inflated prices. So Buffet is not able to buy at the bottom. When he first starts buying the prices go almost to the peak within a few seconds before he is able to fully get into the market and start buying. Similarly if he starts selling then the prices will plummet to the ground even before he is able to sell even a fraction of it. It is possible to do a pump and dump scheme which is what you are suggesting. However a key element here is that you need to buy the stock before you start pumping them. In Buffets case the stocks gets pumped because he starts buying them so he is not able to get inn early enough.
As others pointed out, the logistics for major acquisitions and dispositions are not so simple or quick.
Second, it isn’t Buffett’s strategy. His reputation and strategy is built around long term value plays. If he started pumping and dumping, not only is this a fairly complete repudiation of his own strategy, it would be quickly detected and his reputation would plummet. What you suggest is not at all what he has built his entire fortune and reputation on – so it would be foolishly short term – the anti-thesis of basically his life’s work.
Well, the Buffett effect is short lived and not 100% predictable. Also, it’s not easy to unload $100 million in most stocks. When you’re trying to sell $100 million in stock, you flood the market, which causes the price to go down. This would pretty much eliminate the gains entirely.
If you knew he would sell and ultimately devalue the stock you just bought at a higher price would you follow him?
Two things:
When you see a headline saying “Buffett has bought X”, it’s because the transaction has just been *reported* (in a government-mandated SEC filing), not because it just *happened*.
Information is power, and big institutional traders like Buffett want to give away as little of it as possible. So, they break their trades up into many small chunks so that they blend in with normal activity and they only announce their trades when the government requires them to.
The government doesn’t necessarily require trades to be reported immediately, so the purchase you are reading about may have taken place over months and wouldn’t be feasible to immediately undo.
But let’s hand-wave all of that away and pretend that Buffet could buy up a bunch of stock, announce it, and immediately dump it. That would only work once, as investors would learn that he planned to do that and not follow.
Lastly, Berkshire Hathaway is worth $460 billion at present. Pumping and dumping $100 million worth of shares would be about as useful to them as finding a penny on the ground would be to you.
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