NEW YORK (TheStreet.com) -- Traditionally, Warren Buffett is the type of person who practices what he preaches. Acting on one of his most recognizable lessons -- buy when others are scared -- Buffett proclaimed in a New York Times op-ed piece from earlier this year that he still felt comfortable buying stock in American companies. This was at a time when most people were running scared as Bear Stearns, Lehman Bros. and the U.S. markets in general were taking a dive.
However, now that the market appears to be on the rebound he seems to be stepping back from his message.
As it turns out
has recently been shedding shares of stock and, in return, buying up corporate and government issued debt. In fact recently the company's sales outnumbered its buys. The investor's decision to alter his investment mindset shows just how much further we still have to go as the U.S. markets work towards recovery.
Like all of Buffett's decisions, it is likely that his choice to take a more conservative approach was preceded by intense and thorough research on the present and future of the U.S. financial markets. While huge money bled out of the markets during the most recent economic crisis, Buffett personally lost an estimated $25 billion dollars. Berkshire followed the rest of the market, shedding close to a fifth of its value during last year.
Perhaps the most public example of Buffett's conservative swing is his 2% stake reduction in
. Last week an article stated that in July the company sold 8 million shares of the Moody's. Buffett's decision to cut his company's exposure to the ratings agency was likely due to the fear that its involvement during the economic crisis had damaged the company's ratings' reputations. Interestingly, even with this huge shedding, Berkshire still remains the largest shareholder in Moody's with 39.2 million shares.
Buffett's decision to decrease his exposure to stocks can be seen as an attempt to steer clear of taking the same beating as he did during the worst of the recession. However, though he did get hit hard, this does not mean that he didn't also have his share of success throughout the past year as well. In fact, his bold investment choices have helped to make him one of the biggest winners throughout the whole ordeal.
When the financial industry was tanking, Buffett remained on the front line to rally for a government bailout. When companies such as
Bank of America
got the federal help they needed, Buffett was right there to collect the winnings.
Though the company was in the red during the first quarter of 2009 and even lost its stellar credit ranking, Berkshire was able to bounce back in the second quarter to post profit. It now appears that he will soon be making the profits that he promised with his investments in the once-faltering
upgraded shares of GE to overweight from neutral, which gave the shares a comfortable boost and may in time send Buffett right back to the bank.
As the investor reaches the twilight of his career, I don't have any doubt that he will continue to lead his company, shareholders, and followers to future profits.
Although Buffett has recently moved away from stocks in favor of bonds this does not mean that he has given up on the U.S. economy. On the contrary, Buffett appears to be simply preparing his portfolio for the long slow recovery that we are only in the beginning phases of.
Along that way we will face ups and downs, and by remaining conservative both Buffett and investors that follow his lead will likely weather the bumps better than more aggressive and risky traders. This is another lesson worth taking to heart.
-- written by Don Dion in Williamstown, Mass.
At the time of publication, Dion had no positions in the 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.