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TAG | Berkshire Hathaway
Warren Buffett Just Said “Buy!”
by Alexander Green, Investment U Chief Investment Strategist
Monday, November 21, 2011: Issue #1647
If you needed heart surgery, you’d try to find the most talented heart surgeon around.
If you were about to be subjected to a full audit by the IRS, you’d hire the most capable tax advisor you could find.
And if you needed investment advice? I hope you’re not one of them, but I know some folks who would read financial blogs by complete unknowns, take hot tips from friends and colleagues, or listen to a sales pitch from someone selling insurance or other financial products.
Big mistake. It makes a lot more sense to listen to the world’s smartest investors, instead. And one of the very best – if not the best – is Berkshire Hathaway Chairman Warren Buffett. (Ten thousand dollars invested in Berkshire Hathaway when Buffett took the helm in 1965 is worth well over $65 million today.)
And thanks to disclosures last week, we now know what Buffett has been doing during the last few months of crazy market activity. He’s been buying.
Specifically, Buffett has plowed $10.7 billion into IBM. He has increased his stake in Wells Fargo from 361.4 million shares to 352.3 million shares. He has boosted his Dollar General stake to 4.5 million shares from 1.5 million. And he has increased his holdings in insurer Torchmark to 4.2 million shares from 2.8 million.
There are a few interesting things to note here. The first is that while most investors have been either running to cash or nervously sitting on their hands lately, Buffett has been actively capitalizing on fresh opportunities. You should be doing the same.
Second, it’s worth mentioning that Buffett has generally avoided technology stocks like IBM. But upon reading not some super-secret briefing but rather the firm’s annual report, he learned that IBM enjoys an entrenched position providing technology services to major businesses.
Buffett likes companies with a “moat” like this and has famously said that his favorite holding period is “forever.” Indeed, he recently told The Washington Post that “IBM fits all my principles … it’s something we’d like to own indefinitely.”
Then there’s the price he paid for IBM. I often get emails from readers who are baffled that I sometimes recommend companies trading at or near their highs. Buffett bought IBM as it hit new highs – even as the broad market was cratering. Indeed, the stock has more than doubled since the depth of the 2008 recession.
Buffett’s response? He says the fact that IBM has doubled doesn’t bother him. Indeed, over the years he could have bought the firm at a tiny fraction of its current price. “What matters is what the company does in the future,” says Buffett.
There are a number of important lessons here:
1. As Buffett often points out, you should be greedy when other investors are fearful.
2. You shouldn’t be reluctant to modify your investment approach a bit (as Buffett has with one of his first significant forays into technology).
3. You shouldn’t fret about how much cheaper a stock was in the past if the business is sound and growing today.
And when it comes to investment advice, history shows it pays to listen to the best of the best. That’s one reason we’ve owned Berkshire Hathaway in our Oxford All-Star Portfolio for well over a decade.
Good investing,
Alexander Green
14
If You Knew What Warren Buffett Knows…
0 Comments | Posted by Alexander Green in Alexander Green
If You Knew What Warren Buffett Knows…
by Alexander Green, Chief Investment Strategist
Monday, March 14, 2011: Issue #1468
My publisher recently forwarded me a note from an Investment U reader…
“You guys are recommending a 5% gold allocation in your model portfolio. That’s not nearly enough. I currently have an 80% gold allocation. Given the sorry state of the world, I’ll bet I’m going to make a lot more money than you will in stocks.”
I’m tempted to take that bet.
Sure, gold is up five-fold over the last decade and three-fold over the last five years. But that tells you nothing about where gold will be a year from now, or a month from now.
True, gold may go higher. Perhaps a lot higher. But would I bet 80% of my portfolio on it?
Not a chance. This investor – who clearly lacks experience more than confidence – may be right about the near-term direction of gold. But he’s taking a boatload of risk.
More importantly, he’s making a fundamental investing mistake…
Successful Investing Comes Down to Two Choices
When it comes to the financial markets, no one knows for certain what the future holds. That means every investor faces a stark choice.
- Either: Run your portfolio by making a series of guesses about what lies ahead for the economy and the stock market, jumping in and out of stocks, or bonds, or gold, or sector funds.
- Or: Invest according to proven, time-tested principles.
It amazes me just how many investors opt for the former, following some dubious analysis or making outlandish guesses. It’s even more surprising when you consider the stakes.
Protect and enhance your investment capital over time and you can live a life with all kinds of choices, plenty of financial security and the peace of mind that goes with it.
On the other hand, if you gamble with your savings, you might find that not only have your savings vanished but, more importantly, you no longer have enough time to make up for your mistakes.
People who grossly mismanage their portfolios almost always make the same mistake. They forget to ask that one basic question: What if I’m wrong?
A Powerful Statement From the World’s Greatest Investor
Given recent events, I understand why there’s a lot of skepticism about the outlook for stocks. The media harps on unrest in the Middle East, the spike in oil prices, the real estate slump, high unemployment and unwieldy federal deficits.
But they spend much less time on rock-bottom interest rates, low inflation, an improving economy and record corporate profits.
Listen to different sources and you can come up with completely different conclusions about the future. But here’s someone worth hearing:
Warren Buffett – the world’s greatest investor – recently told CNBC: “I’m 100% enormously optimistic about the future for this country. There’s no way you can bet against America and win… We’ve unleashed human potential and will continue to do so. Twenty years from now, your kids and grandchildren will live far better than you live.”
Most Americans don’t agree with this. Some find it completely unbelievable. That’s why The Oxford Club has put together a special report explaining why America’s best days are still ahead – and inviting you to take full advantage of a more optimistic investment outlook.
Good investing,
Alexander Green
Publisher’s Note: There was a problem with the data featured in Friday’s Investment U article, “Electric Vehicles: Green Power or Just Adding to the Pollution Problem.”
The data came from the North American Electric Reliability Corporation and indicated where power for electric vehicles would likely come from in the future, once the electric vehicle fleet has matured. We wrongly implied that the data referred to the current power grids of various U.S. regions. We regret the error and thank our readers for helping to point it out. We have corrected the article.
~ Jay Livingston, Publisher, Investment U
