Warren Buffett Favors Equities Over Bonds

by on May 7, 2013 | ETFs Mentioned:

Warren Buffett has been a hot topic in the media in recent days after the legendary investor jumped on the social media bandwagon and joined Twitter last week. Appropriately so, Buffett’s first tweet was “Warren is in the house,” and in a matter of a few hours, the account’s followers swelled to nearly 400,000. Over the weekend, the Oracle of Omaha made headlines once again after he invited well known bear Doug Kass to Berkshire Hathaway Inc.’s (BRKB) annual meeting and coolly answered the journalists’ questions [see also The Cheapest ETF for Every Investment Objective].

And as investors continued to listen intently to Buffett’s every word, his CNBC interview on Monday morning drew in plenty of listeners for his valuable kernels of wisdom.

Buffett Sees Great Opportunities for Stock BuyersWarren Buffett

Warren Buffett was once famously quoted saying ” be fearful when others are greedy and greedy when others are fearful” – an investment philosophy that seems quite simple, but is often difficult for investors to implement. For the most part, investors often find themselves following the mainstream trend, buying in when investments are hot and quickly unloading positions when things turn sour. According to Warren Buffett, however, this knee-jerk trading strategy rarely provides meaningful returns [see the Greedy When Others Are Fearful ETFdb Portfolio].

In his CNBC interview, Buffett emphasized his belief, stating that “people pay way too much attention to the short term” and instead need to pay more attention to when major indexes fall below milestones, since that is when stocks are cheaper and more attractive to buy.

When asked what he thinks about the current environment, Buffett noted that while equities are not as cheap as they were several years ago, he thinks that at this time they are “reasonably priced” and are bound to go far higher in the long run. Fixed income investments on the other hand, have several red flags in their future, primarily due to the fact that the Fed will eventually raise interest rates. Currently, Buffett says that bonds are priced artificially higher because of the central bank’s bond-buying program, and when rates start to rise, bond holders could see a significant impact on bottom line returns [see Companies Increase Dividends: ETFs To Play].

Buffett’s Watchlist

In his interview, Buffett also mentioned several corners of the market that he is keeping a close eye on:

  • Europe Equities: Buffett noted that Europe is “is going to be around,” and its current economic downturn presents a rather compelling buying opportunity for those patient enough to weather future road blocks. 
  • Wells Fargo (WFC): Almost every month this year, Buffett has invested additional funds in banking giant Wells Fargo, and he continues to be bullish on the company.

For those simply looking to gain exposure to Berkshire Hathaway (BRK.B), however, there are several options; RevenueShares’ RWW allocates nearly 12% to the company, while the popular XLF gives it a 8.5% weighting.

Follow me on Twitter @DPylypczak.

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Disclosure: No positions at time of writing.