Warren Buffett and his investment strategy that we can learn about
Warren Buffett’s investment style is the topic of endless analysis as savvy investors follow his moves to learn exactly what to do with their own investments. Indeed the Acorn 2018 Money Matters Report showed that more than 40% of Americans want investment advice from the Oracle of Omaha. It’s easy to see why Warren beat off competition from the likes of Oprah Winfrey (32%), President Trump (17%) and Jay-Z (5%) when Buffett is worth more than $83.6 billion and consistently outperforms the S&P index with his know-how and eye for the market.
It’s safe to say we all want a piece of that investment magic in order to make the most of our hard-earned cash. So how will Warren Buffett invest his money in 2019? What business, category or country does he have his eye on next? As the world of finance waits with bated breath for his next move, we look in detail at his recent investments.
First of all let’s set out Buffett’s rules for investing, which haven’t changed for many years.
Warren ‘Oracle of Omaha’ Buffett believes that you should only invest in businesses you understand. He also says that the businesses that will make you money are always the simplest ones, so this is a good rule of thumb when deciding what to invest in. This ties in with his next belief, that you should always be an active investor.
As an active investor, it is essential that you do your own research and do not take advice from forecasts or projections, especially from someone who could stand to gain financially from making those projections. Whether it be stocks, housing or business, Warren never trusts the experts. “Don’t ask the barber whether you need a haircut,” he is famous for saying because of course, the barber is going to say, “Yes”. Always read as much as you can prior to making an investment, look at the rate of return on equity and profits, the debt the company is holding, the promoter’s holding, how much the management is earning and any news analysis that is available. This will equip you to make the soundest decisions possible based on evidence
Buffett also advises people to invest as if they were buying the company. Using this rule, you will ensure that you only invest in companies you really love. This implies a level of trust and understanding of the company that goes beyond the actual investment you are making.
The CEO of Berkshire Hathaway still lives by a long-term value philosophy, the theory being that yes, market prices will fluctuate but ultimately you stand to gain money if you play the long game. “We don’t have any fear at all”, he says, alluding to his certainty that ultimately the market will provide the returns he needs. “In 10 or 20 or 30 years, I think stocks will be a lot higher than they are now. If you buy them over time, you basically can’t lose.”
Buffett’s recent bank stocks strategy
The low price of bank stocks at the moment is not deterring Buffett from maintaining existing investments and even making new ones. We know this is in line with his long-term strategy, as his belief is that if he can pick up the stocks cheaply, their price will ultimately rise, even if there is a crash as many economists are predicting.
With that in mind, Buffett must be feeling confident about the $80 million that Berkshire Hathaway has invested in banks, which is good as this is around 40% of their public stock portfolio. Last quarter, Berkshire Hathaway started new positions in JPMorgan Chase, PNC and Travelers Companies, as well as adding to its existing position in Goldman Sachs, Bank of New York Mellon, US Bancorp and Bank of America. The only area in which he trimmed back was Wells Fargo, given their well-documented struggles of late.
Clearly, Buffett maintains his strong belief in the American banking sector according to his rule of playing the long game.
Companies to invest in according to Warren Buffett’s published strategy
Warren Buffett’s published strategy targets firms with long-term, predictable profitability and a low level of debt which are currently reasonably priced. The Validea strategy is built based on Buffett’s investment style, conducting in-depth analysis the following sub-categories before deciding on a rating of investment potential for a company: earnings predictability, return on equity, return on assets, free cash flow, use of retained earnings, share repurchase, initial rate of return and expected return.
Based on this, Validea suggests investment in the following companies:
Westwood Holdings Group, Inc
A small-cap value stock in the Investment Services industry. The company has many subsidiaries which manage investment assets for their clients including high net worth individuals.
O’Reilly Automotive Inc
A company in the auto and truck parts industry that offers a large-cap growth stock to investors. This American company sells car parts, tools, supplies, equipment and accessories to DIY and professional customers as well as offering in-store services including testing and tool loans.
A large-cap value stock in the Miscellaneous Capital Goods industry. The company designs, makes, distributes and services diesel and natural gas engines and the related components.
A large-cap growth stock from the Regional Banking sector. The company, based in Peru offers banking, pension funds, insurance and investment banking through its various subsidiaries.
Mettler-Toledo International Inc.
This is a large-cap growth stock in the Science and Technology field. The company operates in five markets: the USA, Switzerland, Western Europe, China and ‘Other’ making weighing instruments for the science, logistics and food industries. They also supply inspection systems used in the food, drink and pharmaceutical industries.
So for those 40% of Americans who want advice from Buffett for their investments, one should be placing their investments mostly in American companies across a broad spectrum of industries including automotive, scientific and financial. Indeed Buffett’s most consistent recent purchases across all categories have been in Apple Inc, Bank of New York Mellon Corp, Delta Air Lines, General Motors Co and Goldman Sachs Group Inc which support this strategy playing the long game with large American corporations.
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