HULIQ: Buffett Sells Stocks and Buys Bonds

Posted September 8th, 2009 by Denise Clay

When Warren Buffett speaks, people listen. Now everyone is trying to figure out what Buffett and his company, Berkshire Hathaway is exactly saying after their moves during the second quarter of 2009. A period in which Buffett and Berkshire sold more stocks and invested more in bonds than in a five year period. The question people are asking is what does it mean when Buffett sells stocks and buys bonds?

Buffett is not saying what will happen with the stock market. He continues to warn against investing with borrowed money. He also feels the economy is improving, but it appears Buffett is thinking the economy is not out of the woods.

It could be that Buffett is just gun-shy after not seeing the meltdown of the financial markets last year. After all he did lose $25 billion and his ranking as the world's richest man. Bill Gates is now the owner of that honor.

Or it could be that Buffett as age 79 is doing what most people his age do and move many of his assets to cash and bonds. No one could blame him if he wanted to start slowing down.

Buffett has not said anything about slowing down. It is thought though that he is preparing a successor to take over Berkshire. David L. Sokol, chairman of MidAmerican Energy Holdings and NetJets is said to be the future successor of Buffett at Berkshire.

Maybe Buffett is trying to rebuild his fortune and Berkshire with the move to sell stocks and buy bonds. For both Buffett and Berkshire, 2008 was not a good year. In fact, it was Buffett's worst year in his long career. He broke his cardinal rule of never lose money.

Berkshire lost one fifth of its market value in 2008 and then lost another $1.53 billion in the first quarter of 2009. The company also lost its top-flight credit rating.

After the financial meltdown that Buffett reference as an economic Pearl Harbor, Buffett invested billions into companies such as General Electric, Wells Fargo, Bank of America and Goldman Sachs. Many of the companies he invested in received bailouts from the government. As a stockholder, Buffett benefited from the bailouts.

Buffett's purchases last year for the most part seem to be benefiting him. With the move in the second quarter for him and Berkshire to sell stocks and invest more into corporate and government debt, it appears they are heading back to their places on top of the financial world. Berkshire posted a profit in the second quarter of 2009.

Even though Buffett's current financial strategy appears to be sell stocks and buy bonds, he is holding onto his long time strategy of value investing. He and Berkshire are still buying good values items at very low prices. Now the question is what does this mean for the stock market?

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