Following the Oracle: Warren Buffett's recent actions offer four lessons for investors

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NEW YORK -- When in doubt -- and there's been a lot of that lately -- what do you do? One option is to follow those who know what they're doing, those who have a reputation for making the best of a bad situation. So, how about Warren Buffett?

Sure, the Oracle of Omaha took some heat for being behind the times and staying away from stocks in 1999, but he was revered during the subsequent bust. Lesson learned, the public continued to worship him, especially as he warned of the excesses of debt and leverage.
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What is Mr. Buffett saying and doing now? It's a valid question, because while there's been some bad news -- his Berkshire Hathaway portfolio has dropped 26% from about $70 billion to $52 billion and the stock price is hovering near a six-year low at about $74,000 a share -- he's still exceeded the market. If he had performed with the market, his portfolio would have been trimmed to about $35 billion, so he must be doing something right. See story on Buffett cops to mistakes, likes long-term horizon. If you check out its most recent filing with the SEC, you'll find Berkshire's biggest moves during the tumultuous fourth quarter of 2008:

• Sold 33 million shares (54% of his holding) in Johnson & Johnson
• Sold 9.5 million (9%) of Procter & Gamble
• Sold 5.4 million (7%) of U.S. Bancorp
• Sold 4 million (5%) of ConocoPhillips
• Bought 14 million shares of Constellation Energy
• Bought 8.7 million of Nalco
• Added 6.3 million (10%) to his holding of Burlington Northern Santa Fe
• Added 2.9 million (10%) to his holding of Eaton Corp.
• Added 2.1 million (38%) to his holding of Ingersoll Rand From these moves, it appears Buffett sold large positions in two companies (JNJ, PG) that weren't performing poorly but might have allowed him to raise cash to make preferred stock investments in the financial industry that are paying 10%. He may also have been nervous about the prospects of U.S. Bancorp (financial sector) and ConocoPhillips (declining energy prices).

On the buy side, he appears to like the steady cash flows of utilities and may be loading up on infrastructure plays (water-treatment company Nalco, and industrial suppliers Eaton and Ingersoll Rand).

Here are four lessons investors can learn from his actions:

1. Take some off the table if you can. If you still own stocks that have been relatively unscathed (like JNJ), you might cash out some of your holdings to pursue better opportunities.

2. Avoid risky business. We can't get Warren's 10% bank deals, but there may be other opportunities to trade off a modest potential price gain for a steady return in, say, a municipal bond or bond fund.

3. Read the signs. It doesn't take a Ph.D. from Wharton to know that infrastructure is clearly going to be big in the future.

4. Don't jump at bargains. Temptation is everywhere, but this downturn is more complex and widespread than almost any other. So be careful about "better opportunities." Do your due diligence, and if something looks attractive, take a small stake and add to it later. That's the Buffett approach, and it's worked well.

There's nothing wrong with playing follow the leader, when you trust the leader.