Is Buffett worried about stocks?

Maybe, and investors would do well to understand why he might be concerned.

By Charley Blaine Sep 8, 2009 9:16PM

Warren Buffett © Matthew Cavanaugh/epa/CorbisA year after the world as we know it nearly ended in the Crash of 2008, Warren Buffett is not inclined to be a big buyer in stocks

 

Right now, according to The New York Times, he likes the fat dividends he can get from corporate bonds and government debt.

Is that all there is to the question? Probably not. The legendary investor is much too subtle.  

 

Buffett's Berkshire Hathaway (BRK.A) did take a licking in last year's financial crisis. The stock fell 31.8%.

 

The Times said Buffett's personal worth net dropped by $25 billion (yes, that's billion).

 

So, Buffett may be a bit gun-shy.Berkshire Hathaway

 

Buffett made some big bets on stocks that are paying off already.

 

He has already collected around $500 million in dividends from preferred stock in his famous $5 billion investment in Goldman Sachs (GS). And he's looking at a $2.3 billion gain in warrants on Goldman shares. (The warrants let him buy $5 billion in common stock at $115 a share. The stock is at $167.22.)

 

A $3 billion investment in General Electric (GE) is doing OK but not nearly as well as the Goldman stake. He's collecting a big, fat dividend, but the warrants kick in at $22.50. The stock is at $14.50.

 

He has stakes in Bank of America (BAC), Wells Fargo (WFC), American Express (AXP) and US Bancorp (USB), which have been beneficiaries of billions in government assistance.

 

American Express is the top performer among the 30 stocks in the Dow Jones Industrial Average ($INDU) this year, but Wells Fargo and US Bancorp are still down 8.5% and 15.9%.

 

The Times piece implies that Buffett is worried about the stock market, although he doesn't quite come out and say it. Berkshire Hathaway has dropped 9.7% since Aug. 7; the Standard & Poor's 500 Index ($INX) is flat.

 

He does say the economy is still troubled. "We are not out of problems yet," he told the Times. "We have got to get the sputtering economy back so it is functioning as it should be."

 

My guess is that, in a dicey economy, Buffett is interested in stable, income-producing investments in part because Berkshire Hathaway's core business is insurance. Geico and General Re are core holdings.

 

In addition, remember that Buffett is a value investor. He likes to make investments in good companies only when they're cheap -- as stocks became between September 2008 and last March.

 

And, according to Justin Fuller, author of the blog Buffettologist, Buffett saw the opportunity of a lifetime and did put billions to work in that period.

 

And since March 9, the S&P 500 has jumped 51.2%.

 

So, why be a buyer right now?  It may not be that the market is headed lower. It may be that, to Warren Buffett, the upside may not look that great just yet.

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