Johnson & Johnson
Don't get Sick over Buffett

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By jammerh
June 1, 2009

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Should we sell because Buffett sells JNJ?

If you subscribe to the Great Man theory maybe you should.

I like Buffett. Hey, I'm a big fan. I've been reading his BRK letters, posts at the BRK board, and books describing Buffett's stock-picking skills for about 30 years now.

Even back in the 1980s I understood the concept of patiently waiting for the "Fat Pitch", then being willing to back up the truck when you see it.

So, I waited for an opportunity to buy JNJ. I waited about 5 years. Then in 1994, during what is now frequently referred to as the "Clinton Healthscare" JNJ suddenly became very cheap.

I'd just freed up a pile of cash on which I'd taken severe losses by investing in Japanese funds. Some of you who were around at the time may remember how well Japan had performed throughout the 80s only to run into troubles big time near the end of that decade.

Disgusted, I took my remaining proceeds in 1990 and invested in Hong Kong funds recouping all I'd lost and then some. But the Hong Kong market was moving up so fast that it scared me and I decided I wanted something a little less volatile.

I'd been studying the big pharma group and liked JNJ. So, when the fat pitch came I was ready and bought big. But I remember having one reservation at that time. "If JNJ was such a steal, where's Buffett?"

As one of his biggest fans, it was a little disconcerting to see what I believed was a great opportunity, but Buffett wasn't buying.

He wasn't even buying some of the other big pharmas. This was almost enough to make me doubt my own analysis. Heck, I might have even bought more had I not been somewhat intimidated by this particular aspect of the situation.

I kept reading everything I could get my hands on about Buffett, and I still believe this guy has more to tell the individual investor than probably anyone on the face of this planet. But does that necessarily mean he gets everything right...or even perfect?

Not at all.

In another prime example, back in that last decade, I started buying another company called General Dynamics. At least I bought Gulfstream Aerospace, which GD subsequently bought out.

On news of the announcement I had to scramble to do a lot of research to find out whether or not I wanted to stay aboard. News like this can come as a big shock to someone as slow-moving as myself. It usually takes me years of study before gaining the confidence to pull the trigger.

But I don't look for next year's best performer. The kinds of companies I'm interested in remain good quality investments for many years.

So, it came as another big disappointment to learn that shortly after I'd started purchasing General Dynamics, Buffett started selling.

Now, that can be enough to shake your confidence in investing altogether. When you think you're using good analysis to buy positions you intend to hold indefinitely and yet you see your hero moving in the opposite direction. I think psychologists have a term for that. They call it cognitive dissonance.

In any event to make a long story short I stuck with both JNJ and GD despite Buffett's sales, or lack of showing up.

Years later Buffett was to remark that not buying big pharma in 1994 was something he considered one of his biggest mistakes. That made me feel a little better.

So, I've learned to ignore Buffett's moves. I still watch what he buys with interest, but don't take the sales so seriously. Maybe he just thinks he has a better and not enough cash. Even Buffett isn't perfect.

I've owned JNJ for 15 years now, and GD almost as long, and I've been well-rewarded for the effort. Both companies are rated highly by Valueline in terms of safety. Both offer low risk steady dividend growth, and good potential for growth.

From my limited perspective they're great long term investments for individual investors.

Guru Focus:

Favorite JNJ Posts from a few years back:

"We own 2.2% of JNJ..." - BRK board

"I'd go for JNJ" - BRK board:

JNJ And the power of dividends: