What Is Buffett Buying: Industrials a Good Play?

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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.

RECENT REPORT SHOWS

Berkshire Hathaway 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.

WHAT DID HE DUMP?

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.

BIG PICTURE

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.
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About the Author

Charles Lewis Sizemore, CFA, founder and editor of Macro Trend Investor (formerly The Sizemore Investment Letter), is dedicated to finding superior investments backed by powerful macro trends—before you hear about them on the nightly news or read about them in the newspaper or on the Internet. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal,and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com.

Charles is the co-author of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008); and worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC,  a registered investment advisor.

His academic and real-life experience has given him a unique approach to investing: combining his insights into global macro trends with in-depth investor research. And he has developed a reputation for taking complex issues, recognizing long-term investment strategies, and then finding the hidden investing opportunities that he shares with investors.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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