Invest into financial stocks now…

…says investor legend Warren Buffett and reorganizes Berkshire Hathaway’s portfolio.

Most notably, Buffett seems to loose confidence in the US consumer market, dumping all shares of Home Depot and CarMax and reducing his positions in other consumer goods companies like Nike, as Murray Coleman points out.

At the same time, Buffet increases his positions in financial stocks, buying Bank of New York Mellon and additional Wells Fargo shares. Check out his moves in detail in this video with CNBC’s Tyler Mathisen:http://plus.cnbc.com/rssvideosearch/action/player/id/1645474995/code/cnbcplayershare

The big question: Why did he make the changes he did?

The first part of an answer is easy: As I commented on two weeks ago, the US consumer market is getting nowhere at the moment, with a real unemployment rate of 10-15% and fears of a renewed financial crisis.

For the increase in financial stocks, the answer is more complicated: First of all, I think that, even if the financial services industry is getting on its feet again slowly, Buffett is following his classic rule of “You want to be greedy when others are fearful, you want to be fearful when others are greedy”. Have a look at this classic interview with him:

Secondly, I think that he is more confident than ever that American financial stocks are a pretty safe investment: According to Don Dion of CNBC, Berkshire’s portfolio was in a position of great risk in 2008, and ultimately saved and made more profitable by the big stimulus program.

Now, with the risen influence of Republicans in all financial markets questions, I think he counts on a greater freedom for financial services companies, and thus on rising profits, whilst being sure that there will be another bailout if it all goes down the drain again.

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2 Responses to Invest into financial stocks now…

  1. Thank you bravenewloock. I think you pointed out a quite fascinating issue here.
    One could argue that Buffett’s investments are “always” the right choices for one simple reason:
    – Just because Warren Buffett has established himself as one of the most intelligent und efficiently working investors, the majority of participants on the markets will follow his strategies as they believe in him having the right touch.
    This will boost shares in the end.
    So, the whole development seems to be based on a “self-fulfilling prophecy” and this also reminds me of the strategic “Group Think Phenomenom”.

    For your interests, here a two fresh news about the both banks mentioned in this post, “Wells Fargo 2010” and “BNY Mellon”, did indeed perform well in 2010. So, Buffett actually chose the right US bank shares

  2. Pingback: Bernhard Loock (bravenewloock) – Personal Development in Blogging (Blogpost # 10) | BraveNewFinance.

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