What Is Warren Buffett Up To Right Now?

The Oracle of Omaha has been on the news quite a bit recently. He has made some pretty bold calls on the stock and bond markets. As always Warren Buffett has been putting his money where his mouth is. Let’s take a look at what Buffett has been doing.

Government Bonds Are A Loser Right Now

Billionaire investor Warren Buffett is bearish on long term bonds right now. Buffett feels that any investments in fixed income long term assets is a bad move. He cites concerns about currency devaluation. Buffett stated, “I would recommend against buying long-term fixed-dollar investments. If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”

Ten year bonds are currently yielding 3.49%. In my opinion, that’s a horrible payout for such a long term tie up of an investor’s capital. Thirty year bonds are yielding just 4.54% and five year notes are paying out 2.23%. 3 month Treasury bills are yielding a miniscule 0.09% right now.

Social Networks Are Overvalued

Warren Buffett also took time to chime in on the major social networks. Everyone has heard of or uses Facebook and Twitter. There are over half a billion Facebook users and close to 100 million Twitter users. Facebook has been valued at $65 billion dollars. Despite their popularity, Buffett does not believe in these sky high valuations.

Buffett told New York Magazine that “Most of them will be overpriced. It’s extremely difficult to value social- networking-site companies. Some will be huge winners, which will make up for the rest.”

Buffett is dead right in my opinion as well. I wouldn’t touch the social networks as investment opportunities. Sure, they may be worth dabbling in for a trade or two but they have absolutely no economic moats. The people who will make the cash from these social network IPO deals are the networks founders and the early investors who buy up the shares and dump them.

Buffett Is On A Buying Spree

A lot of people made a big deal when Buffett started dumping shares of some stocks over the past few quarters. They figured that Buffett has turned sour on the market. The truth is anything such. Buffett picked up another company over the past week. He bought Lubrizol (LZ) in a deal valued at $9.7 billion dollars.

This is a classic Buffett play. Lubrizol participate in the incredibly “unflashy” additives market. The company has a wide economic moat and is a boring company that just churns out revenue bringing in $5.4 billion dollars last year and a profit of $1.7 billion dollars. The stock trades right at earnings growth and has approximately $900 million in cash on the balance sheet. Lubrizol is not highly levered and a great historical growth rate. The P/E is under the industry average and he will get the stock for a fair price if the deal is accepted.

Comments

  1. Warren Buffett is a very smart man. I’m glad to see that he’s still investing, but I am still a little worried about the strength of the dollar and our market. What are the rest of us to do? Invest in foreign markets?

  2. avatar krantcents says:

    Buffett’s comments about social networks should be taken with a grain of salt. He normally only invests in companies he understands. Of course, he would think they are overvalued! They probably are, because they are in favor right now. I think he is right about fixed income investments.

  3. avatar Dr Dean says:

    I love Buffett and have a good bit of my retirement money invested in Berkshire H. but he didn’t invest in Google, or Apple either.

    I would consider tech investments on their own merits, but because so much of their value comes from trendyness they should be considered a speculative play. Not a bad play-just shouldn’t be a large part of your portfolio.

    • avatar Mark says:

      Dr. Dean, I agree. I like tech stocks. I wouldn’t invest in the social networks though. I would prefer a Blackboard or Qualcomm.

  4. Buffett is a brilliant man. I strongly agree with his assertions on fixed-income investments. The yields on treasuries right now are very horrible considering you’re locking in your capital for X amount of years. I can get better entry yield with most dividend growth stocks with the chance of dividend growth and capital appreciation. It’s such a no-brainer, it’s ridiculous.

  5. avatar JT McGee says:

    Buffett’s strategy makes sense for him, he knows that he could hit big winners in some places, but with a strategy like “never lose,” he takes safety over huge returns. In the end, safety has paid better than anything else.

    He contrasts best to venture capital, which may have 3 home run investments out of 25, and Buffett has 24 decent investments out of 25. There is more than one way to strike it rich, and Buffett has proven that safety does pay quite well.

  6. avatar Mark says:

    I’m taking Buffett’s side on the social networks argument. It is difficult to value private companies to begin with, and when you add in multiple private-stock traders with different valuations, it makes it even more difficult. I’m waiting for an IPO.

  7. avatar Jason says:

    Hasn’t he been saying the value of the U.S. dollar was going to decline for awhile now? Isn’t that why he bought PetroChina like 7 years ago? I’m not disagreeing at all, that’s an honest question. I completely believe that the dollar could lose even more of its value.

Speak Your Mind

*