$2 billion. 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, Morningstar ( MORN) 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 CIT Group ( CIT). 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 ( FAS) and Daily Financial Bear ( FAZ) ( FAZ) 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.