To call Warren Buffett a man who can recognize a good deal is an understatement. One of the wealthiest men on the planet, Warren Buffett is renowned for the investment decisions he has made over his long and illustrious career. With such a flawless reputation, the current situation with Buffett’s company represents a confusing picture.
We will take a better look at the situation so that you can understand why you might need to take up a more defensive position moving forward.
Buffett’s change in his stance
Buffett is famously known for his distaste of hoarding a large sum of cash. He even said in a very widely read letter to investors in 1998, “Cash does not make us happy.”
The statement clearly shows Buffett’s stance on holding on to massive hordes of cash. Earlier this year, some news about his company Berkshire Hathaway seemed to negate this longstanding position completely. At the midpoint of 2019, Warren Buffett’s Berkshire Hathaway was sitting on a record cash pile of US$122 billion.
Despite many companies Berkshire had stakes in pulling in strong performances, Buffett’s company sold more investments than it bought in the first half of 2019.
A large amount of cash and a huge problem
Most of us would be happy to see such a large amount of money in our bank accounts, but if your profession involves delivering huge returns on investments, holding on to so much money is a significant problem. If you are taking out more money than you are investing in, you might have a solid reason to believe that the market is not heading where you would want to go with it.
In light of the current market situation, selling significant market shares in major companies will seem like a huge mistake. One of Berkshire’s long-time investors, David Rolfe, sold his positions in Buffett’s company after 20 years, suggesting that Buffett is making a huge mistake. I feel inclined to look at this sell-off as a significant warning.
Time to take up a defensive position
Where some people might look at the sell-off as Buffett making a mistake, I think his decision serves as a warning for all of us. Taking up such a defensive position is not something you would expect from Buffett without cause.
I believe taking up a defensive stance would be the best way to move forward as an investor. Perhaps you should consider diversifying your portfolio to add a safe stock like Fortis (TSX:FTS)(NYSE:FTS). Fortis is not a stock that short-term investors typically consider because its shares are less volatile, and utilities do not help investors make a quick buck.
If there is a significant downturn in international markets, a slow and steady stock like Fortis might be the perfect thing to consider. Fortis is a low-risk investment that offers overall safety for shareholders. No matter how bad a recession gets, there is a high demand for utilities. Companies from the utility sector can weather a downturn better than most.
The $23.93 billion market capitalization company has a 45-year streak of dividend increases, which is a reassuring sign, because its streak did not break even during the 2008 recession. Fortis holds its dividend payouts to investors as a priority. Although Fortis may not offer huge jumps in prices, its steady dividends are compelling reasons to invest in its shares.
While it is impossible to predict precisely where the market will head moving forward, Warren Buffett’s position suggests investors should prepare for the worst. I feel inclined to strongly urge you to take up a more defensive stance moving ahead. Investing your money in utility stocks might not be exciting. Still, it is a safe option, and Fortis might be the best company to consider.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares). Berkshire Hathaway is a recommendation of Stock Advisor Canada.