Warren Buffett Now Investing For Limited Growth Over Long Term?
This morning I came across a really interesting piece on TheStreet.com by Don Dion in which he argues legendary investor Warren Buffett is positioning his money these days to achieve limited growth over the long term. Dion wrote Thursday:
Warren Buffett has traditionally been known to discover and invest in undervalued firms with a lot of potential upside. However, today the famous investor appears to be taking a much safer approach to making money.
In recent months, instead of making big bets on risky firms with strong upside potential like BYD. At play, the investor has set his sights on larger, safer firms. If this is a sign of a new era of Buffett investing, investors looking to mirror the financier should be prepared to for slow, steady returns in the future.
Dion took a closer look at the investment strategy of the “Oracle of Omaha.” From the piece:
For Buffett, being successful in today’s market is an issue of managing safety. During the downturn that left the vast majority of investors gasping for air, Buffett’s portfolio was not spared. In fact, during the drop, he lost over $20 billion as well as his top position on Forbes’ list of wealthiest people. Since taking the hit, the investor appears to have taken a note from the tortoise made famous in the fable, The Tortoise and the Hare, as his recent investments appear to be aimed at steady, albeit slow, positive performance.
The largest of these new plays was his purchase of Burlington Northern Santa Fe (BNI). At $34 billion, the railroad investment is Buffett’s biggest on record.
However, unlike BYD, which has rocketed in value in the short time since receiving Buffett’s blessing, the Oracle does not expect BNI to blast off. On the contrary, he expects the firm’s performance to remain relatively stable. Buffett has even implied that the play is not for the short term, but rather a 100-year play for Berkshire Hathaway (BRKA).
Additional signals that Buffett is looking to take on less risk could be found in his recent holdings disclosure last week. Investors anxiously waiting to see which exciting new firms would received the Oracle’s blessing in the third quarter instead found a number of increased bets on previously held, top-ranked, well-known companies.
Some of the most notable bets included Wal-Mart(WMT), Nestle(XOM). and Exxon Mobil(NSRGY). In the case of Wal-Mart, Buffett nearly doubled his exposure to 37.8 million shares from 19.9 million shares.
By holding strong, stable discount retailers, candy makers and oil firms in his portfolio, Buffett appears to be diversifying his holdings across a number of sectors with the aim of positioning himself for limited growth over the long term.
Interestingly, he also appears to be prepping his portfolio to benefit from short-term boosts that will likely occur during the holiday season. In particular, as cash strapped consumers look to discounters rather than higher end retailers for holiday shopping, Wal-Mart and Nestle will see some of the biggest boosts. Exxon will also likely see a strong performance as the winter season drives thermostats up.
Source:
“Professor Buffett Slows Down”
Don Dion
TheStreet.com, November 26, 2009
