NEW YORK (TheStreet) -- "Be fearful when others are greedy, and be greedy when others are fearful."
In 2011, Warren Buffett's adherence to this belief drove him to invest in some of the most disliked and troublesome companies and industries out there. Now, as we progress into the new year, some of these risky moves appear to be showing signs of promise.
Historically, January has been viewed as an optimistic month for the equity markets. Living up to this expectation, the benchmark S&P 500
has gotten off to its strongest start in 25 years. The upward action has resulted in an exciting shift in relative strength.
Defensive market corners like utilities and consumer staples that led the way as we slogged through the tumultuous closing months of 2011 have been usurped by some of last year's biggest laggards. On a year-to-date basis, materials, financials, and industrials are among the top performing market sectors.
A number of the most severely battered industries have seen dramatic turnarounds as well. Solar energy stocks, for example, have staged an impressive rally during the opening weeks of the year, pushing the Guggenheim Solar ETF
to approximately 30% gains.
Short-term market fluctuations likely mean little to Warren Buffett. However, given his empire's growing exposure to solar energy, this staggering recovery must be encouraging.
In 2011, Berkshire Hathaway
took major stakes in the solar sector, even as clouds remained gathered over the industry and funds like TAN were skidding to all-time lows.
In early December, for example, Berkshire branch, MidAmerican Energy Holdings, announced that it had purchased the southern California-based Topaz Solar Farm Project from First Solar
. The 550-megawatt project, which is expected to be completed in 2015, is reportedly valued at $2 billion.
Days following the Topaz deal, Buffett continued his shopping spree, buying a 49% stake in the Arizona-based Agua Caliente solar project, a venture valued at $1.8 billion.
Not surprising given the dismal performance of solar stocks in 2011, Buffett's heavy bets on the industry were greeted with skepticism. In an article written at the time of Berkshire's Topaz announcement
, I expressed my concerns, noting that while the investor's actions could inject some life into the floundering industry, investors should remain wary of following his lead.
The impressive gains seen from funds like TAN and the Market Vectors Solar Energy ETF
during the opening weeks of 2012 has likely led some doubters to change their tone on the solar sector.
While there is a chance that the industry could continue higher in the near term, I still feel that those looking to construct a stable, long-term portfolio are best off monitoring this corner of the alternative energy spectrum from the sidelines.
We have turned over to a new calendar year. However, it is important to remember that many of the same macroeconomic and political challenges that threatened the solar energy industry in 2011 are still in play. In the event that fear makes a comeback, investors can expect inherently risky industries like solar to return to their tumultuous ways.
Written by Don Dion in Williamstown, Mass.