Warren Buffetts Investments

Warren Buffett has avoided losses in two recent crashes. He refused to invest in tech companies in the dot.com boom, explaining that he didn’t understand how some of the companies with the highest share prices would ever make a profit. He was jeered at by the investment community, but was proved correct in the dot.com crash when it turned out that these firms had very poor business models. Then in 2003, he wrote of his concerns about the financial sector. Complex financial products were “financial weapons of mass destruction”, which would be “mega-catastrophic” for the economy, he said. Again he has been proved correct.

Warren Buffett, by showing sound judgment at crucial moments, has become the world’s most successful investor and the world’s second richest man. So it is only natural that people are wondering what Warren Buffett is buying now.

The man himself is happy to tell us. He wrote in the New York Times that he is now buying American stocks. While he agrees that highly leveraged companies will be in trouble and may not survive, he says “fears regarding the long-term prosperity of the nation’s many sound companies make no sense”. “Sound” companies as far as he is concerned are those which are well-managed, have little or no debt and have a clear market for their products.

Buffett is also investing in China; a Chinese company in which Buffett’s company Berkshire Hathaway has a 9.9% stake, rolled out a new electric hybrid car. There are plans to roll this out in Europe and the USA when the economy recovers. He has also been investing in banks like Wells Fargo and U.S. Bankcorp, which do not have exposure to the sub-prime market. And he famously invested $5 billion in preference shares in Goldman Sachs which are paying a 10% dividend, and which come with warrants to buy common shares.

So what are we to conclude from this? Buffett thinks that the doom and gloom on American stocks is overdone, and is picking up stock in some of the soundest companies. He thinks that some of the well-managed banks have had their stock down-graded by a panicky market just because they are banks, when they don’t deserve to be, and he thinks that both China and alternative fuels have a future, and is investing in both.

Those who want to benefit from Warren Buffett’s ideas can do no better than to visit his Berkshire Hathaway website and to read the annual letters to the shareholders which are full of blunt home-spun wisdom about the state of the economy and markets.