by Dawn Pennington 07/24/08
PROFIT LIKE BUFFETT
You don't have to be an oracle in your own right to take advantage of investable opportunities. But how do you get in on the ground floor of opportunities before they shoot into the stratosphere?
When you hear about one of these sweet deals (like one candy company aligning itself with another) taking place, if you weren't invested in these names in the first place, there's always the question of whether you should get in on them, and at what price?
Some of the publicly traded holdings in Berkshire Hathaway's portfolio include such American institutions as American Express (AXP), Procter & Gamble (PG) and Coca-Cola (KO), just to name a few. Basically, these aren't companies that are going away anytime soon, and Mr. Buffett isn't exactly the type of investor who will sit idly by.
Mega-investors like Buffett, Kirk Kerkorian (who just upped his stake in Ford (F) to 4.7% and counting) and others oftentimes do put money into troubled sectors that they can help along the road to recovery or simply to bigger profitability.
One thing these moguls share in common, other than their expansive financial resources, is their business sense that they fully intend to share with management. (Or, at the very least, they will let their opinions be known by the way they do or don't vote at shareholder meetings!)
But even as major or even majority shareholders, they can't always turn around a company single-handedly, quickly or even at all, in some cases. But for the most part, many investors assume that their involvement will lead to good things. And if nothing else, publicly traded companies that have a big name attached to them certainly aren't lacking for attention by the investing community!
WHAT ARE YOUR OPTIONS?
Although Buffett buys companies he likes, you can simply buy their stocks or, even better, their options. He may not directly make stock recommendations, but his actions speak for themselves.
And if you admire his investment style -- or, at least, the profits he's pulling in, you can profit like Buffett without breaking the bank.
In the aftermath of the big takeover news, in which shares of WWY definitely got sweeter, option premiums skyrocketed as the formerly at-the-money calls at the June $60 strike closed at $3.90 on April 25 and hit a high of $18 on April 28.
(Just remember that the stock would have to be trading above $78 at expiration for those $18-per-share options at the $60 strike, for example, to be worth that kind of investment.)
But at a time when consumer spending figures are pretty abysmal, the government's giving taxpayers with incomes below $75,000 funds meant to stimulate a lagging economy and corporate earnings are less "hit" than "miss," stocks are cheaper than they've been in a decade. And buying options instead of stocks is not only cheaper, but smarter in any kind of market and particularly this one!
If you enjoyed this article, check out Dawn Pennington's "Market-Makers Can Make or Break Options Trades" and "Generate Quick, Real Profits Synthetically."
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