More than the stock market being the barometer of the economy, it is Warren Buffett whose buying or selling indicates where the needle of the economy is headed.
Buffett said that he has always been a net buyer since the age of 11, when he started his journey in the market. That’s why panic buttons were jammed up when in September he sold instead of buying when the markets crashed. He sold more than $6 billion worth of stake in nine US bank and finance stocks, including JP Morgan Chase and Wells Fargo. He completely exited from Goldman Sachs though increased stake in Bank of America.
Why was he selling when he had never done so – not even during war times or during recession or even during the market crash of 2008? It is always construed that whenever Buffett buys into a particular stock – it means, not just that company but even that sector is poised for good times. So his getting out of all bank/finance stocks was taken as a very pessimistic outlook; it conveyed that he does that see this sector recovering any time soon on account of the pandemic. All over people shunned this sector as they felt its best to avoid them as Buffett felt that could see earnings becoming a challenge in the near term. Ditto for the airlines stocks, which Buffett completely sold off as he felt that would be the hardest hit on account of the virus.
That’s why it came as a big relief to know that Buffett is back in the buying mode, indicating that things are looking up. In what could be termed as the biggest outlay for buying stocks in one year, he bought the BIG Four pharma stocks – Pfizer, AbbVie Inc, Bristol-Myers Squibb and Merck & Co. He also bought a stake in wireless carrier, T-Mobil US Inc and Snowflake Inc. He spent a net of $4.8 billion, which is over and above the $9 billion spent in buying back his own, Berkshire’s shares.
While Pfizer might be about the vaccine, the rest could be about how the pandemic has made them into great opportunities. There was fear earlier that Biden coming into power might mean profits of pharma companies could take a hit due to tax hikes but now with their House divided, this might not happen.
Whatever be the reasons for his choice, what emerges is that Buffett is no longer rattled, his optimism in the US economy is back.
What does this mean for India? Do we follow Buffett and start buying into pharma stocks? Well, the market has always been buying this sector ever since the pandemic hit hard. Thus, there will be no direct impact but the indirect impact will be immense, in terms of improvement in sentiments and a feeling of optimism. If one of the most developed economies of the world gets back on its feet, naturally, it will spread all round optimism.
But follow his investment to the ‘T’. Like Buffett, take positions with a long 4-5 year horizon but only in companies which have a strong foundation and not leveraged to the hilt. Remember, Buffett made millions by staying invested for a long term. He is not a day trader. And that is probably something we all should learn from him. Invest wisely using your own mind and intellect and maybe, you could emerge as the new Buffett of India!