Yoshikami: Learn From Warren Buffett

Warren Buffett latest SEC filings to the SEC show that those that say he's an investment dinosaur simply don't understand how the mind of the Omaha Oracle works.

Truth is, he is so much more of a tactical investor than many people realize and there are lessons to be learned from his latest investment decisions.

Who says that buy and hold means you cannot adjust as you go along? Buffett is showing clearly that even long-term investors should adjust when business conditions change.

Taking a look at some of his major investment adjustments are telling.

It is obvious that he still feels Kraft Food’s management decision to buy Cadbury was not wise. In the filings, he did not sell the entire position but it appears that he is dollar cost averaging out of an asset that he feels less confident about.

Lesson? Management matters.

And when you have doubts about the decisions leaders of companies are making, adjust your exposure to the assets. But don't panic; re-size if you still like the business but want to be less exposed.

Warren Buffett
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Warren Buffett

He continued to reduce positions that will be impacted by regulatory challenges, including Well Point and a regional bank, Sun Trust Bank . Profit flows more freely when management is able to operate in a way free of regulation. In the environment we face today, regulation will be a bigger part of corporate America. It appears as if Buffett is taking investment actions reflecting the fact that the investment climate has changed and an era of new regulation is here to stay.

Lesson? Don't ignore macro variables that can impact your investment decisions. The environment matters and is an important consideration.

His investment in a Chinese battery maker BYD shows that Buffett recognizes that investments overseas will make sense going forward, particularly given the more stagnant business climate in the United States. Buffet is even planning a trip to India to see the investment opportunities in that growing country. For this reason, we believe his focus will continue to be on a more global investment strategy to capture higher growth rates overseas. Once again, another tactical decision by Warren Buffett.

Lesson? Be global and invest where profits will be maximized.

Don't radically shift but adjust and wade in carefully.

As I stated in a recent blog, buy-and-holddoes not mean you do not adjust as you go along. Warren Buffett is often considered the ultimate buy-and-hold investor and this has certainly been the case for many of his positions. But his latest actions show that while he maintains a strategy of focusing on cash flow-oriented companies and holds for the long term, he's not afraid to tactically adjust when needed.

Being tactical does not mean that you necessarily have to time the markets or become an active trader. What it does mean is that you are nimble and you will reallocate assets given current conditions and the changing environment.

So consider adopting a Buffett-inspired tactical strategy as you invest;

  • Buy based on a longer term time horizon, and adjust as needed based on current conditions.
  • Watch management carefully
  • Do not be afraid to take advantage of short-term tactical opportunities when markets appear to overreact.
  • Look for global assets that can help provide additional returns to portfolios
  • Constantly reassess new information and adjust as needed

Sounds obvious perhaps but very few actually proactively adjust their strategy. And frankly, being flexible in the market like this makes all the sense in the world and Berkshire Hathaway , led by Warren Buffett, is leading the way.



Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.