Why Billionaires are Dumping Stocks (and Why You Should, Too)

| September 19, 2013
Warren Buffett speaking to a group of students...

Warren Buffett speaking to a group of students from the Kansas University School of Business (Photo credit: Wikipedia)

If you want a clue about the stock market, the closest thing to legal insider training is to take a look at what the billionaires are doing. People who largely made their fortune in stock trading, such as Warren Buffet, are very vocal about their moves and why they make them. While a lot of people are getting excited about the 6.5 percent stock rally in this quarter, the billionaire investors are dumping US stocks as quickly as possible.

It’s shocking how quickly Buffet is getting rid of his stocks, and he’s been cited as saying a “disappointing performance” is the reason for his unloading. Basically, the biggies like Kraft Foods and Johnson & Johnson, companies people depend on for their daily needs, aren’t expecting to keep performing according to Buffet. This flies in the face of everything newbie investors are told: You should buy stocks of companies people will always need, like toothpaste makers.

Consumer Purchasing Habits Create a Slippery Slope

Buffet’s holding company, Berkshire Hathaway, has been letting go of stock after stock that relies on consumer purchasing habits to succeed or fail. Specifically, Berkshire has sold nearly 20 million shares of Johnson & Johnson and all of these types of stocks have been reduced by 21 percent. Intel has also been dropped, and Buffett is looking for more ways to thin the herd.

It might seem counterintuitive since 70 percent of the economy counts on consumer spending, but Buffet has a long history of making wise stock decisions. He’s not the only billionaire dumping stocks, since John Paulson is also getting rid of his US stocks. Paulson’s hedge fund relieved itself to consist of 14 million JPMorgan Chase shares this year, and completely got rid of any interest in Sara Lee and Family Dollar.

Other Billionaires Agree

George Soros completely got out of the bank stock business and nixed his relationship with JPMorgan Chase, Goldman Sachs and Citigroup. Why are so many wealthy investors backing off? Real estate is improving, unemployment rates are stable and a lot of research shows the market is on an upswing. However, it may be this alleged “research” that has billionaires so concerned.

It might be because now that the market is improving, companies will be more focused on spending money for borrowing costs rather than expanding their businesses. There will be layoffs, less hiring and overall declining profit margins. Who would want to get in on a stock with declining profit margins?

What Should You Do?

Your own investment strategy should consider your age, your goals and how much you can stand to lose. For example, if you’re under 40 with a good amount of disposable income, you can take some risks. If you’re nearing the retirement age and have a nest egg that you’ve protected throughout the Great Recession, you might want to get out of the game.

Choose a financial investor whom you can trust, possesses great references and track records, and truly has your interests at heart. Interview a few advisors to find the right fit and avoid the rat trap of those newbie investors.

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Category: Investing

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