Invest like Buffett 💎

Warren Buffett, the name sake of our “Invest like Buffett” collection, and his company Berkshire Hathaway always catch the news headlines.

The big news this week is selling Delta and Southwest Airlines. Buffett known for his long term positions and “get rich slowly” approach has caused a bit of a stir by selling in a down market. A quote many of us know he advises against.

Be fearful when others are greedy, and be greedy only when others are fearful.

So what is really happening here?

It could be as simple as rebalancing the holdings. Both airlines are held by Berkshire still, just under the magic 10% amount.

This could also be a bargaining chip for the future. Berkshire likes to negotiate better rates and buy great companies at a good price, if these airlines are still considered great by Warren once the planes are in the skies again, I wouldn’t be surprised to see them being picked up again.

Or this could be freeing up capital to buy some discounted stock Warren has had his eye on for a while. That said, free cash is not something Berkshire is short of .

The best bit about investing like Buffett, is you can just buy Berkshire Hathaway directly. You might want some fractional shares as this stock likes it’s high barrier to entry. For such a highly regarded long term investor, the company’s rankings are fairly average.

This is partly due to the size of the company, as we assess investments in a relative way a larger company has to work harder to create big swings or changes. e.g. A company with revenues of £1m can increase to £1.5m resulting in a 50% increase, whereas a company with revenues of £10m increasing to £10.5m is only a 5% increase.

Berkshire Hathaway is one of 23 stocks we rank which is considered “Mega Large” in terms of market capitalisation. That means they have a market cap over $200 billion.

There is no questioning the long term track record of Warren and his team, but does that mean they never make mistakes? Lots of investors attempt to replicate Warren’s success and fail, but does that mean he is the only midas touched investor out there?

Do you hope to outperform Mr Buffett, or are you trying to follow the leader?

As he says:

The real question is: ‘Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?’

2 Likes

I am more a growth investor, but like to follow him as he is a bit of a proxy for what may happen in the market.

At least he seems like a reliable and decent human being, unlike many other money managers.

Bill Ackman recently really took the Mickey, by crying on CNBC that “hell was coming” only to cover his short options a few days later, then what I think foolishly going in too early on Marriott stock and others, and now on CNBC arguing that the worst is over in an attempt to pump his stock.

1 Like

Sadly a lot of bag eggs!

I agree with you about being more a growth investor. I prefer attractive quality and momentum. I’ve always struggled with value picking. I tend to get good companies at a great price, rather than a great company at a good price!

1 Like

While Warren maybe a long term, slow burn investor, that doesn’t mean he doesn’t drive a hard bargain. Many of his investments where achieved with heavily discounted stock, or additional benefits not available to retail investor (and even some institutional ones!)

An excellent outcome for Warren. Additional, heavily discounted, stock in an holding which has been paying out cash for some time. Clearly taking a view that the cash dividends will return.

While it sounds like doing a favour for Occidental, it seems like good business sense from Warren. If Occidental makes it out the other side it’ll be a return to healthy high dividends, if it starts to slow down and carries on struggling they have even more they can sell for “free”.

1 Like

The indicator has its flaws, including GDP not counting income earned overseas and US-listed companies not necessarily contributing to the US economy.

He has been selling more than buying so there might be more too it than meets the eye. Wonder if he is waiting for post COVID-19 before making any new meaningful investments. Though he has been buying up some very distressed stocks with killer dividend payout deals.

On a lighter note,

Two key points from Berkshire Hathaway’s annual GM.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,”

Buffett hasn’t made any big investments in several years as Berkshire’s massive cash pile ballooned to a record $137 billion by the end of March. He said the reason is simply that he hasn’t found anything “attractive.”

A growing cash pile and a note that the airline industry is going through a radically reimagining of how it operates, both to survive now but also after the pandemic it’s likely consumer habits may have changed.

I am curious what will be the investment(s) which they finally make with all that money? They haven’t made any big noteworthy acquisitions in the last few years. Given the terms of his deals which are normally heavily in his favour, the easier access to capital has likely meant less companies are willing to agree to Buffett’s terms.

Time will tell when the next “great company” at a “good price” shows it’self. No doubt investors and institutions alike will rally behind any investment they make.

As always, he is still a big fan of cheap trackers for the every day investor.

“In my view, for most people, the best thing is to do is owning the S&P 500 index fund,”

Some more Buffett related news today, though not from the man himself.

One of the investors who has long praised Buffett (and runs their own investment house) has pulled out their $1bn stake.

However, Bill Ackman is still very bullish on Berkshire Hathaway, he just wants to free up capital so they can buy some cheap stocks as lockdown looks to be easing and many high quality investments are currently at a discount still.

It seems the decision was driven more by the large pool of cash that Berkshire Hathaway is still sitting on and not deploying, when Ackman sees opportunities he wants to capitalise on.

While it’s good to keep up with large investors moving about, these news piece does feel muted in terms of influencing any decisions you are making. Ackman will likely reinvest back into Berkshire Hathaway in the future, but for now he is looking to get some cheap equity directly without waiting for Buffett.

Some new moves by Buffett.

This is an increase of potion for an existing holding. Buffett now holds 11% of Bank of America.

nearly 34 million shares at an average price of about $24 between Monday and Wednesday, meaning he spent about $813 million.

This is a return to form in terms of buying cheap companies which Buffett already considers a future winner. Investors in Berkshire Hathaway will be pleased to see the number of deals ramping up and the $137bn war chest been utilised.