In 2010, a Warren Buffett holding to follow will be General Electric (GE) - Get General Electric Company Report. For the Oracle, 2009 was marked by the stellar performance from a number of his riskier plays, including Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. Report and BYD.
Additionally, Professor Buffett made some uncharacteristically conservative plays, including his all-in purchase of
Burlington Northern Santa Fe
, as well as his increased stake in
While a number of his investments in 2009 have earned the financier a comfortable profit, one that continues to lag is GE.
In October, Buffett invested $3 billion into the global conglomerate in hopes of banking on the U.S.' expected economic recovery. The deal provided
with perpetual preferred stock with a 10% dividend that is callable after three years at a 10% premium. Additionally, Buffett's firm received warrants allowing him to sell his $3 billion in common stock at $22.25.
Today, the shares remain below the crucial benchmark needed to turn a profit. In fact, thanks to missed revenue, a credit downgrade and challenges facing a number of its branches, GE's share price as of Dec. 22 is actually at a lower level than the day Buffett made his investment. As the year comes to a close, Buffett appears to be breaking his No. 1 rule: "Don't lose money."
However, it is important to remember that Buffett does not make short-term investments. Rather, one of the financier's most enduring qualities is his patience. He has famously gone on record saying, "Our favorite holding period is forever." This patience may pay off in 2010 as GE looks to reverse a year of struggles.
Last week, at an annual investor meeting, CEO Jeff Immelt made it clear that, though the firm has bled profits and taken a hit this year, he believes that the worst is over. Looking to 2010, he feels that, though the damage done by the downturn will linger, the firm has made the moves necessary to benefit.
For 2010 and beyond, GE looks to return to the powerhouse it was prior to the global economic meltdown. Some of the more crucial steps the firm has taken to achieve this goal include shrinking its troubled financial arm and working toward completing its sale of the unprofitable NBC Universal branch to
. In their place, the firm will also refocus on its industrial arm through a number of energy and health care projects.
Fortunately, these two sectors will likely see some of the strongest growth in the new year as the U.S. gets closer to signing into law the new health care bill, and nations around the world look to develop more alternative energy in light of the Copenhagen climate talks.
Rarely does Buffett lose out on a deal. While GE has not earned him the profits of Goldman Sachs in 2009, I would advise investors to avoid writing off the firm in 2010.
Rather, if 2010 provides a prime chance to get in cheap, investors may want to take a look at the available exchange-traded funds that are heavily weighted in the conglomerate. These will see a big boost if GE regains its former strength.
iShares Dow Jones US Industrial ETF
Industrial Sector SPDR
provide the strongest exposure to the firm. GE currently accounts for 12% of IYJ and 13% of XLI.
While these funds are heavily weighted in GE, they are not solely reliant on the company for their performance. On the contrary, although GE has struggled throughout this year, IYJ and XLI have still gained 23% and 20% in 2009 through Dec. 18.
GE is not the only similarity between these two funds. In fact, aside from differences in weighting, both instruments share the same 10 top holdings. Among these is another prominent Buffett play: BNI. This railroad is a minor holding accounting for 3% of XLI and 2% of IYJ.
In all, I feel that the strongest play on GE and Buffett is XLI. Because of their similarities, the decision largely comes down to the variations in expense ratios and size. In both of these categories, the SPDR fund comes out on top.
XLI, which has nearly $2 billion assets under management, charges a 0.21% fee. That is considerably lower than IYJ, which charges 0.48%. The iShares fund has $273 million under management.
While I would advise investors to go with XLI, either of these instruments would be an excellent way to follow Professor Buffett into the new year.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.