Warren Buffett bought both Goldman Sachs (GS) - Get Report and General Electric (GE) - Get Report last fall before the economic downturn hit fever pitch. As share prices decreased, Buffett was criticized for his timing.
Nine months after, however, Goldman's blockbuster profits have helped Buffett back into the black to the tune of
. Investors shouldn't count out GE as Buffett's next success.
Selecting a single company exposes investors to a security risk that is mitigated through the use of mutual funds and ETFs. The breadth and depth of GE's portfolio, however, help to make this single equity mutual fund-like. GE's five components are technology infrastructure, energy infrastructure, NBC Universal, consumer and industrial and capital services. The segment that is perhaps most on everyone's mind, GE Capital, accounted for 43% of the firm's profit in 2008.
The economic pullback hit financial services hard and analysts have pointed to GE Capital as a potential liability for Buffett and other GE investors. After a conference call Tuesday in which GE addressed the topic of GE Capital,
analyst Daniel Holland noted that, "we continue to think that GE's ability to hold on to assets over a longer period will help it to limit losses within this portfolio as the company can avoid selling assets in a bad market."
GE's low cost of capital has been an advantage for the firm, a point that Buffett underscored when discussing the problems facing
. Speaking with
Fox Business News
earlier this month, Buffett commented on the state of CIT, noting "the problem with CIT is that their raw material, which is money, costs them far, far, far more than their competitors. So the banks have access to money at average rates that are really very tiny now. And CIT's money cost them way more."
Buffett, whose investment approach shuns the notions of market timing, is a good fit for the diversified GE model. The company seeks out markets in which it has a competitive advantage and can afford to invest over the long term. In a market environment where many investors have a short-term attention span, Buffett will doubtless be pilloried than praised time and again for investments such as Goldman and GE.
Like Buffett, investors should set their sights on the long term. The growing popularity of daily ETF products like
Direxion Daily Financial Bull
Daily Financial Bear
seem to indicate that investors' patience continues to grow shorter.
Short-term investments should be used in harmony with a long-term plan. Buffett has much to teach with his investments in Goldman and GE, and now is the time for investors to listen.
At the time of publication, Dion had no positions in the stocks or funds mentioned.
Don Dion is the 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.
Dion is also president and founder of Dion Money Management, 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.