Ive done a great deal of reading on Warren Buffets investment stratagies and trying to invest my best as he does. The one thing my portfolio lacks at this point is a good core of defensive stocks. Stocks I eventually plan to own such as KO, PEP, PG, JNJ, CL are very attractive stocks financially and have great records of ROE and ROA, etc, but at this time are not attractively priced. Im assuming they are near 52 week highs due to the impending "recession" or slow down as investors fly toward safe stocks. With a suppossed slow down coming a Buffet type investor would wait for such stocks to decline in price correct? I have a long investment horizon 30+ years and was basically wondering do I invest now that money is available or wait it out for prices to correct? Looking at the historical prices these stocks have done very well over the last 5+ years or so? Is a correction with these stocks feasible being that they are so financially sound?

Nothing wrong with getting a core group of stocks for your portfolio, it requires a great deal of patience. If the price isn't screaming "buy" let it go.

However, you've only mentioned one segment that Buffett loves to invest in, ie, consumer stocks. He also loves financial stocks, and has a great understanding of them. He's probably looking in that direction now.

JNJ and CL are two of mine. JNJ, imo, is the better buy right now, but not exactly screaming buy. Nonetheless, I'm expecting it to do as good or better than the market going forward.
 

Right now I'd be buying the financials that Buffett bought last year, at higher prices... BAC, WFC, USB. He also bought GE shares early in 2007, and I think they're still a decent buy.

Of the ones you mentioned, I like JNJ, PEP, and PG best at today's prices. They're not screaming buys, but certainly ok to accumulate since you have a very long time horizon.

Regards,

Duane

 

I would agree with all of the above.

In addition, Buffett closed down his original limited partnership because he did not think he could find any stocks to buy at that point. My recollection  is that he has gone the whole year at Berkshire without buying anything, saying at the annual meeting, that nothing was worth buying.

Buffett says that investing is not like baseball. In investing you can wait for a fat pitch. You never strike out or walk, you get to stand at the plate and wait for your pitch. So, if you can't find anything worth buying right now, park the cash and wait.

 

Bob

Research by S&P has shown that tobacco stocks have traditionally outperformed other consumer product subsectors in a recession (Wintergreen and Mutual Discovery funds have the largest percentages of tobacco stocks). Food & beverage (especially beer and hard liquor), health care, and utility stocks have also tended to hold up better because there is constant demand for the products and services. The problem is that utility stocks had a run up of about 20% in 2007, thanks in part to Warren Buffett's interest in that sector. Early last year, I overweighted utilities (with XLU) and consumer staples (with FDFAX). In this weekend's Wall Street Journal, there is a story headlined "Sometimes, The Best Offense Is A Good Defense" which points out that utilities and Treasurys are no longer cheap; it recommends muni bonds and health care stocks. Vanguard Health Care and T.Rowe Price Health Sciences (my choice) are mentioned as mutual fund options. In other reports, I keep seeing Johnson & Johnson, sometimes Eli Lilly.

[quote user="Dr. Bob"]

My recollection  is that he has gone the whole year at Berkshire without buying anything, saying at the annual meeting, that nothing was worth buying.

[/quote]

I recall Berkshire making several purchases in 2007, based on required SEC filings...

BAC, JNJ, WFC, USB, UPS, GE

I could be wrong, but that's my recollection.

Regards,

Duane

RE Duans,

 

 I did not mean that Buffett has JUST in 2007 gone a year without any buys, but that in the past when he did not see anything fit to buy, he did not. I do not remember which year(s) this was as I have been to a number of annual meetings and always read the annual reports and letters (so I know I have heard/read it but not the actual time frame).

Bob

[quote user="Dr. Bob"]

I did not mean that Buffett has JUST in 2007 gone a year without any buys, but that in the past when he did not see anything fit to buy, he did not. I do not remember which year(s) this was as I have been to a number of annual meetings and always read the annual reports and letters (so I know I have heard/read it but not the actual time frame).

[/quote]

Got it. I misunderstood your previous post.

Yes, certainly Buffet is very patient, both on the buy side and the sell side. It's worth paying attention in both cases, IMO.

Duane

How about just buying BRK.B when price dips like it is now?

I have very limited brain cells (which are dying fast) and I cant think. So decided to buy BRK.B when the price comes down. Otherwise index funds.

[quote user="theDumberOne"]

How about just buying BRK.B when price dips like it is now?

I have very limited brain cells (which are dying fast) and I cant think. So decided to buy BRK.B when the price comes down. Otherwise index funds.

[/quote]

Not a bad idea. A couple months ago Barrons had an article on Berkshire, saying that the stock was overvalued, and only worth 130,000/share. Well, that's about where it is today. Book value is around $78,000/share, which puts the shares at about 1.6x book. It was a little cheaper than this at one point in 2000, like maybe 1.3x book, but I think it's an okay buy today.

Duane

Even the best companies (defensive or otherwise) only make a good investment at the right price.

Utes I would normally consider "defensive".  But they have held up so long now (barring the last 2 days), I would have to look hard before buying.

PEP, KO would be defensive, but both looke expensive.    The most defensive stock out there is probably not a good investment if you paid too much.  Banks might normally be "defensive" -- but not so much this time, as they are at the epicenter of this particular problem (though may be OK for long-term buyers here, of USB, BBT, and some others -- if you can handle the volatility).

I will make a suggestion though:    GE.      Not typically thought of as a defensive stock, I admit.    But it has some things which provide it with defensive 'attributes'

1. Price. Near 52-wk low.  Its a "Dog of the Dow".

2. Diversity of businesses.

3. Global exposure. 

4.  AAA balance sheet.  Gives them the flexibility to obtain good acquisitions, at a good price (given weakness in the markets).  "Financing concerns" are not a problem that GE has to worry about.

5. Proven management:  Immelt & crew seems to deliver the goods in terms of operating results, quarter in, quarter out. They seem to make a habit of Under-promising and Over-delivering.

6. They just today re-affirmed their 2008 guidance.

Probably the last company I would ever imagine that would need to run over to China, the UAE, or Saudi, with hat in hand, looking for a capital infusion which dilutes current shareholders.

Yeah. I own it.   Added to my position today.  

JMO. Good luck.

 

 

 

 

GE is one I'd like to own, but...

Ever read one of their annual reports? It's impossible, imo, for me as a small investor to keep up with all their businesses, too diverse, too big, too complicated.

Secondly, it's "enterprise value", that is, net debt plus market value is 800 Billion. If you were to buy it outright at today's market price that is in essence what it would cost you. So, what's your return on that investment? 22 billion.

There are dozens of solid companies out there with earnings yields a lot higher than GE. 

Warren buys stock he likes when their prices are low  and ignores what the economy is doing.   A good deal can pop up at the height of a bull market,  and a so called defensive stock could be overpriced in a recession.

Lots of people bought BRK.B simply because of Warren Buffett.

If Warren is dead, the stock price will drop a lot. (30%+ easily)

 

My two cents, if anyone cares.....

I didn't see anyone mention BNI.  Warren loves this company and Berkshire Hathaway Inc(BRK) consistently purchases shares (10 separate purchases in Jan2008 alone).  See Form 4 filings at www.sec.gov.  If you look over Form 13F filings, you can see that BRK has consistenly increased holdings in this company every quarter. Shares held for a while and which continue to be purchased by BRK since Sep07 are BNI, JNJ, SNY, USB, WFC.  I got this information by comparing 13F filings for each quarter.  I would personally go with BNI, JNJ for now.  Maybe throw in a few AXP shares. 

New shares that BRK has purchased are KFT and GSK.  I would be curious to see how GSK and KFT fares.  I would be a little cautious since they are new additions to the portfolio.  Maybe buy a few and see what he does next quarter.

By the way, BRK.A or BRK.B has way too many old holdings and it would not surprise me if they dump off some of the old holdings and ad some of the new like they already have with KFT and GSK.  Instead of investing in BRK, I would just follow in Warren's footsteps... from this day forward, purchase everything he purchases.

 I guess this was more than 2 cents worth.  Hope it was useful.
 

[quote user="mattym"]

...but at this time are not attractively priced. Im assuming they are near 52 week highs due to the impending "recession" or slow down as investors fly toward safe stocks. With a suppossed slow down coming a Buffet type investor would wait for such stocks to decline in price correct? .....Looking at the historical prices these stocks have done very well over the last 5+ years or so? Is a correction with these stocks feasible being that they are so financially sound?

[/quote]

I think you would be better off coming up with a way of analyzing a companies financials to determine when the stock was selling at a discount to the fair value, rather than trying to guess based on historical prices and what not.  I  don't do that kind of analysis myself, but M* does and I use their guidance to decide what is and is not a good price to buy at. 

I know the M* stock investor newsletter covers all the companies you mentioned because I subscribe to it. I hope its ok to put a plug for them.

good luck

Daniel

 

 

 

 

With a 30 year time horizon trying to time purchases doesn't seem to be necessary in my book.  You need a bit of everything and if your in an IRA or other tax deferred situation you can use dividend reinvestment plans to keep the cash at work.

 

I would get several stocks now:  PG, JNJ, C, BAC, COP, XOM, CL, BRKB, GS.  I would also get some aggressive Vanguard Fund to cover the wilder side of the market for expert investment management which can turn on a dime, e.g. Primecap, etc.  You can add specialized funds in time.

I would leave about 10-15% in cash to take advantage of something which might pop up. 

I would advise reading Jonathan Clements articles regularly.  He appears weekly in the WSJ and on Sunday's in many local papers.  I don't think you need a subscription to read his articles (and prior ones) on the web.

You might also try to join a local investment club.  The best ones have older members and have been around more than 10 years.  Ask your neighbors for leads to the clubs.