NEW YORK (
) -- Warren Buffett has traditionally been known to discover and invest in undervalued firms with a lot of potential upside. However, today the famous investor appears to be taking a much safer approach to making money.
In recent months, instead of making big bets on risky firms with strong upside potential like
. At play, the investor has set his sights on larger, safer firms. If this is a sign of a new era of Buffett investing, investors looking to mirror the financier should be prepared to for slow, steady returns in the future.
Although the global economy appears to be on the heal, a number of issues continue to threaten the long-term stability of the market's rally. These various weaknesses have not only caught the attention of Professor Buffett, but a number of other prominent financiers including Bill Gross, George Soros, Jim Rogers and John Paulson.
Each individual has designed and shared his unique investment strategy with the public through personal buying and selling, market commentary or a combination of both. Whether it's by using gold, commodities, utilities or traditional fundamental analysis, each strategy strives to successfully prepare for future market conditions in an environment that has never before been experienced.
For Buffett, being successful in today's market is an issue of managing safety. During the downturn that left the vast majority of investors gasping for air, Buffett's portfolio was not spared. In fact, during the drop, he lost over $20 billion as well as his top position on
list of wealthiest people. Since taking the hit, the investor appears to have taken a note from the tortoise made famous in the fable,
The Tortoise and the Hare
, as his recent investments appear to be aimed at steady, albeit slow, positive performance.
The largest of these new plays was his purchase of
Burlington Northern Santa Fe
. At $34 billion, the railroad investment is Buffett's biggest on record.
However, unlike BYD, which has rocketed in value in the short time since receiving Buffett's blessing, the Oracle does not expect BNI to blast off. On the contrary, he expects the firm's performance to remain relatively stable. Buffett has even implied that the play is not for the short term, but rather a 100-year play for
Additional signals that Buffett is looking to take on less risk could be found in his recent holdings disclosure last week. Investors anxiously waiting to see which exciting new firms would received the Oracle's blessing in the third quarter instead found a number of increased bets on previously held, top-ranked, well-known companies.
Some of the most notable bets included
. In the case of Wal-Mart, Buffett nearly doubled his exposure to 37.8 million shares from 19.9 million shares.
By holding strong, stable discount retailers, candy makers and oil firms in his portfolio, Buffett appears to be diversifying his holdings across a number of sectors with the aim of positioning himself for limited growth over the long term.
Interestingly, he also appears to be prepping his portfolio to benefit from short-term boosts that will likely occur during the holiday season. In particular, as cash strapped consumers look to discounters rather than higher end retailers for holiday shopping, Wal-Mart and Nestle will see some of the biggest boosts. Exxon will also likely see a strong performance as the winter season drives thermostats up.
With the market's rapid turnaround, many investors who were wary of the environment are now kicking themselves for not jumping in earlier. However, although the recent rally has been stellar, this does not mean that investors should be taking on excessive risk in hopes of catching up.
On the contrary, with the longevity of this rally still very much up in the air, investors would do better by spreading their assets across a broad number of strong sectors and asset classes. Like Buffett, this strategy may not lead to the biggest jumps, but it will ensure that you will not be left in the dust in the event of another gut-wrenching downturn.
Over the long haul, slow and steady will win this race.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion did not own any stocks mentioned.
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.