Buffett likes consumer monopoly, why then did he buy POSCO STEEL? PKX

Warren Buffett has allowed leeway in his usual investment strategy by purchasing a 4% stake in POSCO back in 2006. He is well known to hate commodity companies as they do not have monopoly power and they only can compete on prices. The lowest cost commodity company will be the most profitable but only for a short while as the competitors will embarked on huge capital expenditures to lower their operating costs as well.

It is this idea that Warren Buffett loathes investing in any commodity companies. However, it seems that he has made an exception for POSCO STEEL and we shall see why.

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How would a ‘Buffettologist’ trade Bank of America, Citigroup, Goldman Sachs and all the banks? $BAC, C, GS, WFC

First, let’s simplify Warren Buffett’s investment philosophy.

1. Buffett likes to invest in companies with predictable earnings.

Bank of America, Citigroup and JPMorgan s’ earnings are much more predictable now than there were in 2008 – 2009. Despite the uncertainty due to the Dodd Franks, Basel and regulatory reforms, the core business of these banks are sound – that is the lending of money. While credit cards business might have uncertain outlooks, they account for 20% of the banks revenues. That is not a small sum for sure, but we can be certain that the earnings attributed to money lending is predictable. For a conservative estimate, we can just use these earnings and assume that earnings from the other division are zero or positive.

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