Professor Buffett's Reality Check

Buffett has tempered his views about the U.S. economy and accordingly made adjustments to his portfolio.
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NEW YORK (TheStreet) -- When Warren Buffett speaks, he attracts a huge audience. His words resonate with individuals on both Wall Street and Main Street, and his lessons are learned and internalized by investors around the globe.

In regards to the U.S. economy, Warren Buffett's comments have almost entirely leaned towards optimism. In a now famous

New York Times

op-ed, published in the midst of the U.S. financial meltdown, the chairman of

Berkshire Hathaway

(BRK.A) - Get Report

attempted to alleviate investors' fears towards the future.

He said the troubling economic conditions we were facing were not setting the stage for a catastrophic global economic Armageddon. Rather, the Great Recession offered a fantastic opportunity for investors to gain exposure to U.S. economy as it returns to strength.

Buffett has put his money where his mouth is. By purchasing companies such as

Goldman Sachs

(GS) - Get Report

and Burlington Northern Santa Fe Railroad, the Oracle of Omaha has set up his legendary investment portfolio to flourish along with the economic recovery.

While some, in reading his words and watching his actions, may paint Buffett as a rampant bull, he is not blind to the economic challenges that face nations like the U.S. For instance, in an interview this week, he offered a noticeably tepid view of the economy for the near future.

Speaking at a conference in Tel Aviv, Buffett said the effects of the recession would be felt for some time. Although we remain well on the road to recovery, our pace along this path will be far from brisk, he said.

This reality check brings to mind some of the steps Buffett himself has taken to deal with the slow recovery.

To be sure, he has made a name for himself picking out undervalued companies with plenty of upside potential. However, in looking at Buffett's legendary Berkshire Hathaway portfolio, it is apparent that the investor has focused much of his attention recently on holdings which will promise less explosive, albeit stable returns over the long term.

Berkshire Hathaway's portfolio sets aside considerable assets for companies such as

Wells Fargo

(WFC) - Get Report

and

American Express

(AXP) - Get Report

(AXP).

However, many of the largest stakes included within the firm's portfolio are in the defensive consumer-focused sectors, including

Coca-Cola

(KO) - Get Report

,

Proctor & Gamble

(PG) - Get Report

,

Kraft

(KFT)

,

Wal-Mart

(WMT) - Get Report

, which are among his top 10 positions and together account for over 40% of the entire portfolio.

Meanwhile, even Buffett's newest purchases appear suited to see consistent returns over the long term. Most notable, perhaps is

Republic Services Group

(RSG) - Get Report

, which specializes in waste removal.

Heavy exposure to defensive-minded plays will ensure that Buffett's portfolio will successfully weather economic storms as nations around the globe continue on the way to recovery.

Using exchange traded funds investors have the ability to mimic Buffett's cautiously optimistic view of the future. Strong, stable, dividend-oriented ETFs such as the

iShares Dow Jones Select Dividend Index Fund

(DVY) - Get Report

expose investors to a basket of well-known companies which are known to have paid out consistent yields while offering protection against market swings.

I agree with Buffett's view that as we continue along the road to strength the going will not be perfectly smooth. Therefore, investing in this environment will require not only a well- diversified portfolio, but also patience and a strong stomach. Luckily funds such as DVY can help alleviate some of the concerns, allowing for a more comfortable ride to recovery.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management was long iShares Dow Jones Select Dividend Index Fund.

Don Dion is 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.

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.