Barron’s associate editor, Andrew Bary, joins the ‘Barron’s Roundtable’ with information about the letter that will come out on February 27
Warren Buffett is one of the most successful investors in history. His incredible management as CEO of Berkshire Hathaway and the investment choices he made during that period earned him the nickname The Oracle of Omaha, and it is not difficult to understand why Buffett’s investment advice and stock moves are so similar followed .
With a combination of uncertainty and opportunity currently on the horizon of the stock market, there are good reasons to turn to one of the largest investors in the world in search of potential insight.
Read on for guidance on investing as a Buffett in 2021.
ANNUAL BERKSHIRE HATHAWAY LETTER FROM WARREN BUFFETT: WHAT TO EXPECT
Make your choices with the long term in mind
Warren Buffett said his favorite time to own shares is “forever”. This does not mean that he never sells shares, but his long-term approach to investing has been a big part of his success over the years.
Under Buffett’s guidance since 1965, Berkshire achieved an average annual growth of 20.3%, absolutely crushing the return to the broader market in the same period. The conglomerate ended last year having surpassed the S&P 500 index by about 2,700,000% since Buffett took over the leadership of the company, and its constant, quality-focused investment approach played a big role in this.
Investors must focus on high-quality businesses with competitive advantages and ongoing opportunities that will position their portfolio to thrive in the long run. This wisdom is summed up by one of Buffett’s most cited wisdoms: “It is much better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
While supporting cheap stocks that have struggling underlying businesses or chasing volatile price swings can sometimes result in huge gains, these successes are difficult to repeat consistently. The timing of the market is incredibly difficult. Investing in strong companies with a buy-to-hold approach will put you on the road to superior performance in the long run.
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What moves are Buffett and Berkshire doing?
If you want to extend the goal of investing like Buffett, in addition to simply incorporating his approach to analyzing, buying and maintaining stocks, then looking at Berkshire Hathaway’s recent moves will show you how to do that. Berkshire is required to present a disclosure of its holdings each quarter in a document known as 13F. Investors can consult these documents to see what shares the Buffett company bought and sold in the previous quarter.
There are a few different ways in which investors can replicate their investment strategies. One is to follow Berkshire’s biggest recent purchases.
Of recent purchases, Verizon, Chevron, Marsh & McLennan and EW Scripps have been entirely new additions to Berkshire’s portfolio, while the company has increased positions in the other companies on the list.
Investors can also replicate Buffett’s approach by building positions in Berkshire’s largest general equity positions, including Apple, Bank of America, Coca-Cola, American Express and Kraft Heinz. Looking at the overlap between the company’s biggest recent purchases and the largest overall stakes, Berkshire’s most convincing stock pick in the last quarter appears to be Verizon. It made a major purchase of shares in the telecommunications giant in the fourth quarter, quickly becoming the company’s sixth largest overall shareholding.
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Another way to invest like Buffett in 2021
The other obvious way to invest like Buffett is to buy Berkshire Hathaway stock. The company invested more in the purchase of its own shares than any other stock or asset during the 12-month reporting period. This is a strong indication that Buffett believes his company’s shares are undervalued.
Berkshire Hathaway’s shares offer investors a simplified way to build a diversified position in a wide range of holdings. In addition to its publicly traded shares and real estate developments, the company also has full control of companies, including GEICO, See’s Candies and Duracell, among others.
Although Berkshire’s somewhat conservative approach has meant that its performance in the broader market has been undermined in recent years, as high-growth technology stocks have won big wins, the investment firm has one of the best management teams in the financial sector .
The market may be prepared for substantial volatility for the rest of the year, and keeping an eye on the evolution of the strategies of one of the most successful and value-driven men in history remains a good idea. Investors will be able to take a closer look at Buffett’s thinking when Berkshire publishes its annual letter to shareholders later this month.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.
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Keith Noonan has no position in any of the mentioned actions. The Motley Fool owns shares and recommends Apple, Berkshire Hathaway (shares B) and Bristol Myers Squibb. The Motley Fool recommends RH, T-Mobile US and Verizon Communications and recommends the following options: short sale in January 2023 $ 200 in Berkshire Hathaway (B shares), short sale in March 2021 $ 225 in Berkshire Hathaway (shares B) and long in January 2023 US $ 200 in calls from Berkshire Hathaway (B shares). Motley Fool has a disclosure policy.