Buffett Likes to Be Early, Don't Be Too Hasty In Following Him

Warren Buffett wrote an op-ed in the New York Times, announcing that he's selling US bonds in his personal account and buying American stocks. Equities will outperform cash in the next ten years, he says. Naturally, everyone's excited.

In investing, Buffett says he follows Wayne Gretzky's advice: "I skate to where the puck is going to be, not where it has been." A perhaps better analogy of Buffett's investing style is getting to a New York City subway station before the train arrives. Unlike Gretzky's puck, which takes a second or two to get to where the hockey great expects it, the wait for an MTA subway train can take hours. Buffett gets to the subway station extra early (some of his recent stock purchases):

NRG Energy (NRG)
Bought: $40 to $44.43 a share
Last close: $18.18

Sanofi-Aventis (SNY)
Bought: $32.32 to $38.04 a share
Last close: $29.08

Burlington Northern (BNI)
Bought: $76.65 to $91.99 a share
Last close: $80.47

Kraft (KFT)
Bought: $28.56 to $31.66 a share
Last close: $27.50

US Bancorp (USB)
Bought: $29.07 to $34.09 a share
Last close: $30.87

WellPoint (WLP)
Bought: $43.23 to $87.63 a share
Last close: $39.92

UnitedHealth (UNH)
Bought: $34.37 to $55.95 a share
Last close: $22.63


For Berkshire's 2008 stock purchases, it appears that only Wells Fargo (WFC) is in positive territory since Buffett added shares. (Buffett did use a subsidiary to purchase a 10% stake in Chinese battery maker BYD, which doubled after the deal was announced, but the above is a partial list of Buffett's domestic stock purchases.)

This is all to say that just because Buffett's buying now it doesn't mean you have to rush to buy stocks. There's plenty of time to do thorough research before jumping in. And when you do jump in, don't buy everything in one order. It's best to do it over a number of days, weeks, or months.

There is much speculation as to which stocks Buffett is buying for his personal portfolio. Names like GE, Wells Fargo, Coca Cola (KO), and Kraft are being thrown around. Buffett may indeed be buying these, as he's said to be a creature of habit.

It's likely, however, that Buffett is also buying small and mid cap stocks. Buffett has previously said that he would generate annual returns of 50% if he had smaller sums to invest. Given that he has far less cash to put to work than Berkshire, Buffett isn't restricted to large caps. Small and mid cap stocks have a much higher gain potential. For example, investors have to put around $200 billion into GE for it to double. A stock with a market cap of $1 billion, on the other hand, would only require investors to put in $1 billion for it to double. It would grow 200 times on the same amount of capital required for GE to go up two times.

Yes, the best time to buy stocks is when there's panic in the streets. But don't rush, and don't spend all your money in one place or at one time.

Disclosure: I owned no stocks mentioned above at the time of writing.