Warren Buffett is Rotating into Riskier Sectors; Should You?

If Warren Buffett is doing it, it must be good, right?

That’s actually horrendously bad advice. Warren Buffett is one of the greatest investors in history, but you should never blindly follow any investor–not even the Sage of Omaha. You don’t know what their rationale for buying was or what their sell criteria is, and you certainly lack the clout and control over management that Warren Buffett brings to a deal.

That said, if Buffett is buying it, it might at least make sense to do a little research. We may or may not end up buying what he’s buying, but it can’t hurt to pick his brain a little.

So, what is Buffett buying? A lot of gritty industrials.


Berkshire Hathaway (NYSE:$BRK-A) recently released its holdings for the third quarter, and three of the company’s four new buys were industrials: Deere & Co (NYSE:$DE), the producer of tractors and others heavy-duty equipment, Precision Castparts Corp (NYSE:$PCP), which is essentially a metal shop with a worldwide presence, Wabco Holdings Inc (NYSE: $WBC), a world leader brake and control systems for large commercial vehicles.


Interestingly, Buffett sold out or reduced his holdings in several consumer-oriented stocks. Most of Buffett’s most famous investments involve consumer product names–a Coke anyone–while his single greatest failure was an old-line industrial stock: the textile company Berkshire Hathaway itself.


In any event, Buffett is clearly bullish on the global economy. He’s not playing it safe by buying defensive consumer names (though he does maintain large legacy positions in Wal-Mart, Procter & Gamble & Coca-Cola). He is buying companies that very much live or die with cyclical economic activity.

There are different ways to skin this cat, and Buffett’s industrial picks would not be my first choice. But, if you want to follow Buffett, buying the Industrial Select SPDR ETF (NYSE:$XLI) isn’t a bad option.

But if you’re going to play the “risk on” game, I would be more inclined to buy an emerging market ETF. Once good choice might be the MSCI Turkey ETF (NYSE:$TUR). Turkey is an attractive market right now for several reasons. It’s the most politically and monetarily stable it’s been in years, and it stands to be one of the prime beneficiaries of the eventual rebuilding of Syria. It’s also a dominant economy in the Eastern European and Middle Eastern markets, and its stocks are very reasonably priced at just 9 times earnings.

With fiscal cliff worries likely to keep the market choppy for a while, you may want to ease into this position over the course of the next few weeks. As always, general common sense rules apply. If global stocks look to be starting a new bear market, you do not want to own volatile Turkish stocks. I recommend using a 15% trailing stop to guard against that possibility.

Disclosures: Sizemore Capital is long TUR. This article first appeared on TraderPlanet.

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