I respect the man, but followers of Warren Buffett need to be warned not to follow exactly in his footsteps.
What he’s doing now may be good for him and for Berkshire Hathaway (NYSE:BRK.B), but it could be dangerous for individual investors—just like the moves he made last year with Bank of America (NYSE:BAC).
The great Oracle of Omaha put down a $5 billion investment in BAC in September of 2011. The reason I screamed from the rooftops then for people not to start piling into banks and to not to follow Buffett’s lead is because he got a special preferred stock deal on BofA that investors like you and I can’t get.
And I was right. If you had plunked down your money in BAC on September 1 st of 2011, you’d have a 0% gain. The stock is within a penny of the September price and that is downright pitiful.
I want you to continue to stay away from banks, particularly BAC and while I don’t think Buffett is completely off his rocker this time, I do want you to keep clear of Buffett’s latest investment swaps. This time he has decreased his exposure to Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG) and Kraft Foods (NYSE:KFT).
All of three companies have struggled with sales and earnings growth recently. I rate JNJ and PG as holds in my stock rating tool Portfolio Grader. KFT has fared a bit better, but only because operating margins, return on equity and buying pressure have remained relatively strong. My current rating for KFT is a cautious buy.
While Buffett is decreasing his exposure in the three companies noted above, he is increasing his position in International Business Machines (NYSE:IBM), National Oilwell Varco (NYSE:NOV) and Wells Fargo (NYSE:WFC).
I actually have buy ratings on both IBM and WFC, but I’m not recommending them in any of my investment newsletters. Sales growth, earnings momentum and buying pressure need to firm up a bit before I would pull the trigger. And even if WFC posted blowout earnings and captured investors’ attention, I wouldn’t give it my full endorsement because of all the troubles that still plague the banking industry.
And as for NOV, I rate it as a hold at best. Sales and earnings are on the rise, but investors are leery of energy plays right now. I made big bets in energy last year and into early 2012, but I expect the trend is over in the near term and that Buffett is late to the game.
Time will tell, but please believe me when I say that Buffett is a shrewd value investor, but following his moves and trying to make the money he does by buying and selling alongside him is not the right move.