Could This Be Why Warren Buffett Sold General Electric Bought Synchrony?

Warren Buffett has long been considered the consummate value investor. His penchant for value investing is generally attributed to his relationship with the renowned father of value investing Ben Graham. However, what is often overlooked is the influence that partner Charlie Munger brought to Warren Buffett’s investing philosophy. Warren attributes Charlie to introducing him to the concept of investing for growth at a reasonable price. Consequently, Warren Buffett has evolved from the traditional Ben Graham “cigar butt” value investing strategy into a GARP (growth at a reasonable price) approach.

Let there be no mistake about it, Warren Buffett and partner Charlie Munger continue to embrace valuation as an important component of their investing philosophies. However, in contrast to attempting to buy assets at a deep discount, they are more interested in buying growth at a sound valuation. Perhaps this deviation from the Ben Graham traditional value investing concepts might partially explain the recent selling of General Electric (GE) and the subsequent purchase of Synchrony Financial (SYF). Of course, I have no way of knowing what Warren Buffett or his associates were thinking when they make these transactions. On the other hand, a close fundamental examination of both of these companies seems to support and validate these transactions as consistent with what I have thus far presented.

FAST Graphs Fundamental Review: General Electric versus Synchrony Financial

In reading various articles (and the accompanying comment threads) on General Electric, I have encountered what I consider numerous misconceptions and unsubstantiated opinions about the company and its historical performance. To be clear, many accurately criticize General Electric’s poor historical stock price performance. However, they usually fail to recognize what has actually caused General Electric’s poor long-term price performance. Additionally, many people criticize recent past management (Jeffrey Immelt) and sing the laurels of his predecessor Jack Welch.

Personally, I do not believe those are either totally fair or accurate assessments of each man’s legacy. In 2011 I wrote a two-part article discussing General Electric under each CEO’s tenure. In part 1 found here, I talked about the Jack Welch era and General Electric.

In part 2 found here I discussed the challenges and headwinds that faced Jeffrey Immelt as Jack Welch’s successor. To summarize, the deck was heavily stacked against even the possibility of success for Jeffrey Immelt. However, we shouldn’t feel too sorry for him, because his personal rewards as CEO of General Electric were extraordinary even though shareholders did not fare as well. Nevertheless, as I will illustrate in the following video, I do not believe all the blame can be placed on Jeffrey Immelt.