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.
[ad#Google Adsense 336×280-IA]Specifically, Buffett has plowed $10.7 billion into IBM. He has increased his stake in Wells Fargo to 361.4 million shares from 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
[ad#jack p.s.]
Source: Investment U