What was Mr. Buffett’s sell strategy? It was to buy when everyone else was focusing on selling! That is probably the most important lesson to be gleaned from his annual report. As he put it: “Pessimism is the friend of the long term investor, euphoria the enemy.”
So, Mr. Buffett didn’t sell anything in the face of such a relentless bear? Actually, he confessed to trimming his positions in Procter & Gamble and Johnson & Johnson in 2008’s fourth quarter. But, this, according to him, was so he could buy securities in General Electric and Goldman Sachs.
This type of move really underscores his investment philosophy. Not only was he investing in the most volatile part of 2008, October and November, he was rebalancing his portfolio away from what was generally perceived to be the only safe areas of the market, health care and consumer nondurables, into financials and industrial cyclicals.
The bottom line is Mr. Buffett espouses a contrarian investment philosophy. Not only is he buying, not selling, when markets are declining, but he’s buying in some of the most beaten down areas, financials and industrials, while lightening up in those sectors in which others are seeking a safe haven.As Mr. Buffett put it: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”