Across his years of investing, the legendary Warren Buffett has built a fortune comfortably over $100bn.

During his tenure as CEO of Berkshire Hathaway, Buffett has more than pleased shareholders with an impressive average annual return of around 20%. That’s double the return of the S&P 500.

As an investor, I have nowhere near the experience Buffett has amassed over the years. Therefore, looking to the Oracle of Omaha for some inspiration seems like a smart idea. As I continue to build out my portfolio, here are the Buffett methods I’m using to be successful.

Invest in what you know

My favourite method used by the legendary investor is to invest in companies you know and understand. This means owning businesses where you can easily appreciate their core features.

A simple way of doing this is by understanding how a company makes money and what influences its industry. By doing so, you eliminate uncertainties and avoid the risk of running into complex issues that impact the company’s performance.

Buy for the long run

Another method I’d adopt is investing for the long term. Buffett himself once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”.

The stock market is inevitably volatile. And this has been clear to investors in the last few years with the pandemic and its knock-on effects. However, these short-term peaks and troughs are nullified with a long-term approach.

Buffett has stakes in a host of companies that he’s held for years, such as Coca-Cola. By replicating this approach, I’d aim to build wealth in the long run.

Be greedy

Finally, Buffett has talked about being greedy when opportunities in the stock market arise.

This was most certainly the case in the global financial crash of 2008 when he snapped up a variety of stocks for a cut-down price. And with the declines we’ve seen across global markets in the past few years, this message resonates once again.

With many stocks taking a hit in recent times, this presents an opportunity for me to add high-value companies to my portfolio for cheap.

What should I buy?

So, with the above in mind, what stocks should I be adding to my portfolio?

Well, while I don’t have any spare cash right now, if I did, I’d look to companies like Apple (NASDAQ: AAPL).

The value of the business is easy to understand, with over one billion people using Apple products.

Looking at the long-term returns of the stock, it’s also clear to see the attraction of Apple. While past performance is no indication of future returns, the last five years have seen it rise an impressive 273%.

The tech company is Berkshire Hathaway’s largest holding, making up nearly 50% of its portfolio. And at the firm’s recent annual shareholders meeting, Buffett labelled Apple as the best business he owns. 

As Buffett said: “someone is sitting in the shade today because someone planted a tree a long time ago”. I’d hope that if I bought Apple today, I’d hold it for years to come and generate some healthy returns.

The post I’d use these Warren Buffett methods to build wealth! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In his many years of investing, Warren Buffett has amassed a net worth comfortably into the billions.

During his time as CEO of Berkshire Hathaway, the Oracle of Omaha has produced mouth-watering returns – double that of the S&P 500.

Along the way, Buffett has dropped nuggets of advice that I believe all investors should seriously consider when stock picking. Here are three pieces I’d use for my portfolio.

Buy the business

A lot of people judge their decisions based on the share price of a company. However, Buffett has stated in the past that it’s more important to focus on the strength of the business itself.

What this means is that he doesn’t necessarily buy stocks solely because they have a low valuation, for example. Instead, he looks more widely at whether he deems a stock attractive due to its core business features.

If this is the case, Buffett can then assess whether the share price offers value. This again doesn’t mean it’s just ‘cheap’ – but that he sees potential for growth.

Long-term outlook

As well as this, he also buys stocks for the long run. As he once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

Investments will undoubtedly go through volatile periods. But with a long-term perspective, these short-term headwinds are almost irrelevant.

Be greedy

Finally, Buffett has also talked of the ability to “be greedy when others are fearful” as a powerful tool to maximise returns.

The declines we’ve seen in global markets this year are obviously an issue. However, with Buffett’s advice, these declines also become an opportunity.

With many attractive businesses taking hits, now could be the perfect time for me to pile in.

These in action

With these in mind, it makes sense why Apple (NASDAQ: AAPL) is Berkshire’s top holding. The majority of people could tell you the value of Apple’s products and services, showing the strength of the business. And with the stock down 4% in 2022, this may be an opportunity to grab some shares.

On top of this, while past performance is no indication of future returns, the last five years have seen Apple stock rising 343%. For its long-term investors, these are some hefty returns.

Buffett deems Apple as one of his ‘four giants’. And in the second quarter, Berkshire topped up its holdings with an additional 4 billion shares.

The tech giant also posted some strong results in its latest update to shareholders, where net sales jumped 2% compared to H1 2021.

Within the results, CEO Tim Cook talked of Apple’s ability to “enrich the lives” of customers.

The business may see a slowdown in demand in the upcoming months as the cost of living continues to rise. Higher costs for materials and supply chain issues may also prove headwinds for the firm.

However, like Buffett, I deem Apple a strong addition to my portfolio. Its core business features are more than attractive. And if it carries on with its impressive growth, I think I could see some healthy long-term returns.

The post I’d follow this Warren Buffett advice when buying stocks appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett is renowned for his quotes. Over his long and successful investment journey, Buffett has always liked to buy quality stocks for a cheap price. For example, amid the devastating financial crash back in 2008, he famously quoted in a letter to Berkshire Hathaway shareholders how “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

With 2022 having seen big falls in the stock market so far (for example, the US S&P 500 is down 22% year-to-date), here’s why I’d follow Warren Buffett and buy Apple (NASDAQ: AAPL) stock today. It’s by no means a cheap stock, but it is marked down at the moment.

Apple share price history

Long-term investors in Apple have seen strong results over time. Following the firm’s rise, the last five years have seen its share price rocket by 275%. In fact, Apple has risen over 1,300% in the last decade. However, the stock has failed to repeat this form in 2022. It’s down 26% year-to-date. Despite a 7% rally in March, the share price has struggled to take off this year.

Apple shares make up nearly half of Berkshire’s stock portfolio. And amid its fall, Buffett has rushed to purchase more shares in the tech giant. At the end of March 2022, Berkshire had nearly $160bn worth of Apple shares.

Apple opportunities

With this fall, I think, just like Buffett, that Apple could be a strong addition to my portfolio. One reason for this is the firm’s buyback scheme. Led by CEO Tim Cook, in recent times the business’s performance has been boosted by the programme. Companies buy back their own stock for a variety of reasons, with one being to increase value for shareholders. Last year alone, Apple spent over $85bn on buying back shares.

Also, the current Apple share price can be seen to provide value from some viewpoints. Buffett has previously said that “the important thing is to know what you know and what you don’t know.” Essentially, what he means by this is that investments should be understandable. And with over a billion people using Apple devices across the world (myself included), it’s clear to see the useful services that Apple provides and to understand why it’s popular.

Apple risks

With this said, there are a few concerns I have with this stock.

Firstly, it’s currently trading on a price-to-earnings ratio of around 22. While it has been higher in times gone by, this is still not cheap.

Apple may also suffer from the cost-of-living crisis. With everyday life becoming more expensive, the business may see a slow in demand as consumers shy away from purchasing new expensive goods. This would no doubt impact the share price.

Why I’d buy

Despite this, I still deem Apple a buy. Although it could see a drop-off in demand, I think it holds such a strong position in the market this is unlikely. And along with the firm’s buyback scheme, I think the company is in a strong position to bounce back. Just like Buffett, I would buy Apple shares today for the long term.

The post Why I’d follow Warren Buffett and buy this stock today! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Beating the stock market on a consistent basis, over a long period is a difficult task. Maybe almost impossible. However, Warren Buffett and his partner Charlie Munger are among very few investors who have ever achieved such a feat. His fund, Berkshire Hathaway (NYSE: BRK.A) has outperformed the S&P 500 by almost 3,000% since its inception! So, here’s how he does it.

Quality is invaluable

It’s no secret that Warren Buffett only invests in quality stocks that provide good value. Over his decades of investing, he’s reiterated that a good investment has three main factors:

1. A good valuation with room for growth.
2. Strong pricing power and fundamentals.
3. An excellent moat with a margin of safety.

This is evident when analysing his company’s portfolio. The firm has positions in many of the world’s biggest companies. Many of these stocks have one thing in common. They’re market leaders that exhibit quality profit margins and healthy fundamentals.

A buffet of stocks

As the US S&P 500 flirts with bear market territory, the Oracle of Omaha has been going on a shopping spree. Warren Buffett has been buying shares in excellent companies for cheap valuations, having done the same during the 2008 financial crisis. He’s made mistakes in his investing career too, but he learns from them and moves on.

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

Warren Buffett

The current forward price-to-earnings (P/E) multiple for the S&P 500 stands at 16.6. This is below the five-year average of 18.6, and 10-year average of 16.9. As such, Warren Buffett has increased and even bought positions in several blue-chip stocks. These include PC giant HP, oil behemoths Chevron and Occidental Petroleum, and recently, entertainment conglomerate Paramount Global.

These purchases allow Warren Buffett to dollar cost average, as he continues to buy value stocks on the dip. Berkshire’s move to increase its stake in oil also allowed the firm to capitalise on sky-high oil prices. This has allowed the fund to hedge against the potential slowdown in earnings from its other positions. Consequently, Berkshire Hathaway has outperformed the S&P 500 by almost 20% this year.

Keeping it simple

Warren Buffett has always stressed on keeping investing simple. Buy shares in a great business for less than it’s worth, with managers of the highest integrity and ability. But what is a great business? As hinted at earlier, these are businesses with low debt, high levels of cash, healthy margins, strong growth, and an inelastic good/service. While this may seem simple, companies exhibiting all these traits are difficult to find.

So, despite already having an array of renowned names on his portfolio, the 91-year-old has expressed his regret in not purchasing shares of several top US companies. One is a personal favourite of mine, Alphabet. Although the tech giant came short of earnings expectations recently, he sees plenty of promise in the Google-owning firm. With a 20-1 stock split around the corner, I think Berkshire may add Alphabet to its portfolio. If so, I’d be even more confident in Warren Buffett’s ability to continue beating the stock market.

The post How does Warren Buffett beat the stock market? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett is a legendary investor with countless aphorisms to his name. My favourite is: “Time is the friend of the wonderful company, the enemy of the mediocre.” In that spirit, let’s explore Warren Buffett’s portfolio and see if his top two stock holdings are good long-term buys for me.  

Apple 

According to Berkshire Hathaway‘s (NYSE: BRK-A) SEC filing, Warren Buffett’s largest holding is Apple (NASDAQ: AAPL). Via Berkshire, Buffett owns 5.55% of the US tech giant’s total shares — a whopping 43% of his equity portfolio. Buffett began building a stake in Apple in 2016 and in his annual letter to Berkshire shareholders he praised CEO Tim Cook for Apple’s share repurchase strategy. 

One factor behind Buffett’s bullishness is the iPhone maker’s competitive advantage. Apple’s ecosystem is created by establishing market standards, encouraging developers to build apps tailored specifically to Apple smartphones. This produces a virtuous cycle, making Apple products indispensable. 

Nonetheless, Apple supplier Foxconn recently suspended its Shenzhen production due to a Covid-19 outbreak in the region. The Apple share price is still high for me, despite being down almost 14% on a three-month basis. Currently, I’m reluctant to deploy a significant amount of my cash reserves buying Apple in one go.

Indeed, Warren Buffett bought his position at an average cost of a quarter of today’s price. I will be buying steadily over the coming months to capitalise on any further dips in Apple’s share price. 

Bank of America 

At over 13% of Berkshire’s holdings, Bank of America (NYSE: BAC) is the second-largest constituent of Warren Buffett’s portfolio. The stock’s P/E ratio of 11.63 fits with Buffett’s value investing philosophy. Shareholders also benefit from a handy dividend yield of over 2%.

The Federal Reserve is tipped to hike interest rates in 2022. Bank of America should benefit from these macroeconomic conditions. Moreover, with a total net income of $32m for 2021, the bank is well placed to build on strong fundamentals this financial year. 

The stock currently sits almost 20% below its 52-week high in mid-February. Furthermore, the US economy is flashing recession warning signs. Bank of America shares could face further pain, given the bank services around 67 million consumer and small business clients stateside.

Despite these risks, I see Bank of America’s current share price as an attractive entry point to add this Warren Buffett stock to my portfolio. 

Another way to invest like Warren Buffett 

Perhaps the easiest way to mirror Warren Buffett’s investments is buying Berkshire Hathaway shares. The company’s compounded annual gain of 3,641,613% dwarfs the 30,209% gain for the S&P 500 from 1964 to 2021. For me, Berkshire stock carries some of the diversification benefits of an index fund while providing an opportunity to beat the market. 

Investors may worry about Buffett’s age at 91 while Vice-Chairman, Charlie Munger, is 97. Berkshire Hathaway’s share price performance without the duo at the helm is untested. This doesn’t dissuade me from owning the stock, however. I see the potential for future leadership to emulate Buffett’s investing approach beyond his lifetime. 

Berkshire currently has over $145bn in cash on its balance sheet and insurance is a large part of its business. A useful reminder for me that, with share valuations riding high, cash is king for scooping up bargains in the event of a stock market crash. 

The post 2 stocks make up over 50% of Warren Buffett’s portfolio. Should I buy them? appeared first on The Twelfth Magpie.

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Charlie Carman owns shares in Berkshire Hathaway. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What I like

Berkshire Hathaway fully owns over 60 companies and has partial stakes in dozens more, including Apple. It is run by Warren Buffett and his friend Charlie Munger, who between them have made it one of the most successful conglomerates in the world.

To me, it seemed that buying Berkshire stock was the equivalent to buying into the most successful actively managed portfolio in the world. An actively managed ETF is different from a passive ETF or index fund in that a manager watches the market and chooses to add or subtract stocks based on their personal analysis. If the manager is successful then they can bring in much greater returns. However, management comes with no guarantee of growth and can attract significant fees.

From 1965–2020 Berkshire Hathaway achieved, on average, a 20% compounded annual growth, far outstripping the S&P 500‘s 10% in the same period.

Buying Berkshire shares feels like a sort of cheat code, allowing me access to dozens of companies and active management from the best investors in the business.

What worries me

Over the past few months, Berkshire Hathaway’s share price growth has slowed. I believe this has a lot to do with fears of inflation and potential interest rate hikes in the US. Berkshire was one of many companies in the US that benefited incredibly from the Covid-era investment boom. Investors poured cash into a stock that they knew was in safe hands. As a result, Berkshire B-shares climbed from a low of $169 in May 2020 to their current high of $287.

But if interest rates rise, will those investors choose to take profits? Its impossible to know for certain, but it does make me hesitant to buy more shares right now.

Buffett would of course tell me to ignore the noise and buy shares if I believe in the company. But so much of the confidence in Berkshire is actually confidence in Buffett and he is likely to retire in the near future. The man who will replace him, Greg Able, has a much smaller public profile, so it is harder to know what direction he will take the company. Munger has said that Able would “keep the culture” at Berkshire Hathaway, making reference to the decentralised operating structure. But it’s not clear if he will bring new insights to the company and help it to modernise, or if he will follow the same course as his predecessor.

Both of these eventualities come with risks, and I worry that the very mention of Buffett stepping down will hurt the stock price.

Conclusion

Berkshire Hathaway has been exceptionally managed for the past 50 years, and has even provided an impressive return on investment over the last two. But as it enters this critical stage in its evolution, I will refrain from adding to my position and wait until any potential turbulence is in the rear-view mirror.

The post Is Berkshire Hathaway still worth a buy? appeared first on The Twelfth Magpie.

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James Reynolds owns shares of Berkshire Hathaway (B shares). The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here are just some of what I consider to be the Sage of Omaha’s most important lessons.

Know your business

“Never invest in a business you cannot understand“.

Warren Buffett is a fan of sticking to what you know. He only buys stakes in a business if he understands what it does and how it will continue to make money for him in the future. 

The portfolio of stocks owned by his holding company Berkshire Hathaway bears this out. Buffett part-owns giants such as Coca-Cola, American Express and Apple. 

Early in my investment journey, I found it remarkably easy to get involved in things I didn’t understand (or at least didn’t understand as well as other people). Even if I didn’t end up buying shares in these companies, I still wasted lots of time trying to figure out exactly how they would grow my capital.

These days, I do what Buffett does. Throw such stocks in the ‘too hard’ pile. Instead, I hold shares in businesses I can easily summarise, like food-on-the-go retailer Greggs, luxury fashion brand Burberry and drinks firm AG Barr.

Buy quality stocks

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

If understanding what a business does is vital, so too is knowing how much to pay for its shares. Warren Buffett’s original investment strategy was to buy seriously cheap stocks. Their quality didn’t matter so much if they were so lowly priced. As such, he was confident he could still make money. This focus later changed to buying stocks with strong competitive advantages (or economic moats).

By their very nature, such companies aren’t all that common and are usually more highly valued. So, having found a good thing, Buffett believes an active investor should bet big. If not, s/he may as well track the index.

Learning how to separate the wheat from the chaff takes time. What’s taken me longer however, is recognising that paying up can still work if a company can reinvest and compound earnings for years to come.

Stay the course

“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”

With news coming thick and fast every day, there’s a tendency to think that investors need to react to everything. Buffett disagrees. He thinks that inaction is key to growing wealth. This is why he says his favourite holding period is ‘forever’. 

While we shouldn’t take that literally (he still sells), Buffett’s record bears out this ‘buy and hold’ approach. He first began investing in Coca-Cola back in the late 1980s and still holds the stock today. 

Whether I can own stocks for as long as Buffett remains to be seen. However, adopting a ‘don’t touch!’ policy means I’ll definitely save on commission fees. Over time, costs like these actually have a huge impact on returns.

The post How I’d invest using 3 lessons from billionaire Warren Buffett appeared first on The Twelfth Magpie.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Paul Summers owns shares in Greggs, Burberry and AG Barr. The Motley Fool UK owns shares of and has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool UK has recommended AG Barr and Burberry and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Mr Buffett’s success as a long-term investor is legendary. Shares in his company Berkshire Hathaway have risen by about 1,000% since July 1996, helping many of the firm’s shareholders to achieve financial independence.

Many top investors only share their investing wisdom with paying customers. But Mr Buffett is known for his open approach and shares much of this thinking in Berkshire’s annual letter to shareholders, which is freely available to all.

In this article I’m going to look at three of Mr Buffett’s tips which I believe could help you achieve your own financial independence.

Quality matters

Mr Buffett has a reputation as a value investor and started his career buying so-called cigar butt stocks. But he soon moved on to focus more heavily on quality businesses with lasting advantages. This is reflected in one of the Sage of Omaha’s most famous quotes: “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”

The idea behind this is simply that, over the long term, quality businesses grow more reliably, generate more spare cash and command higher valuations. All of which is good news for their shareholders.

Don’t ignore serious problems

He is a long-term investor and once suggested that you should “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”.

But following a long-term style doesn’t mean you should stick blindly with a company that’s got serious problems. Sometimes the best thing to do is to abandon ship, as he explains: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

One example of this situation was in 2013, when Berkshire Hathaway started selling its shares in Tesco, which it had held since 2006.

Although I rate Tesco as an investment today, it’s worth noting the shares are still well below the 300p+ level at which Berkshire started selling in 2013. Sometimes, you just have to get out. In my experience, it’s usually a great relief when you do.

Be patient

Here at the Motley Fool, we believe in long-term investing. Short-term traders tend to rack up costs and even winning trades often have fairly small profit margins. In the stock market, big wins usually take time.

Mr Buffett takes an even stronger view on this: “The stock market is designed to transfer money from the active to the patient.”

One of the hardest things for many investors to do is nothing. But this is a standard part of Mr Buffett’s routine. He says that he spends much of each day “reading and thinking” and emphasises that you should only act when the time is right.

You can’t get much clearer than that.

So to finish off, here’s a quick recap of what I’d take away from his success. Do your research and buy for the long term. But don’t be afraid to act when you realise you’ve made a mistake.

The post 3 tips from Warren Buffett to help you achieve financial independence appeared first on The Twelfth Magpie.

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Roland Head owns shares of Tesco. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If you’re looking to start investing in the stock market, here are three simple investments that could enable you to benefit from Buffett’s wealth of wisdom.

Buffett’s Berkshire

The most immediate way to align yourself with Buffett is to buy shares in his investment company, Berkshire Hathaway (NYSE: BRK.B), which is listed on the New York stock exchange. With a market value of over $500bn, Berkshire is one of the top stocks in the S&P 500 — an index of 500 of the US’s biggest companies. Over the last 53 years, Buffett has increased Berkshire’s value at an annualised rate of a bit over 19%.

Berkshire owns, or has a controlling stake in, a number of private businesses, but also has investments in a range of stock market-listed companies, including American Express, Apple and The Coca-Cola Company. Of course, one consideration for investors today is that Buffett is no spring chicken and — when the time comes — there can be no guarantee Berkshire will be as rewarding under the management of his successors.

Britain’s Buffett

One alternative — and an attractive one for UK investors, in my view — is to buy shares in London-listed Finsbury Growth & Income Trust (LSE: FGT). This investment company’s portfolio has been managed for the last 18 years by Nick Train, who has been dubbed “Britain’s Warren Buffett,” due to his devotion to investing by Buffett’s fundamental principles. Finsbury’s annualised return over the last 10 years has been just under 19%.

Many of the companies Train invests in are recognisably ‘Buffett-type’ stocks — that’s to say, they have certain business and financial characteristics that Buffett looks for. Indeed, one of Train’s biggest holdings, Unilever, was the subject of an attempted takeover last year by Buffett-controlled Kraft Heinz. Other top stocks in Finsbury’s portfolio include drinks giant Diageo, financial services company Hargreaves Lansdown and fashion house Burberry.

Buffett’s bequest

Buffett has said many times that he believes (and there’s plenty of data to support it) a low-cost index-tracking fund will deliver superior returns to those achieved by most investors, whether private or professional. In fact, in a bequest in his will for the benefit of his wife, he has advised the trustee to invest 90% of the cash in an S&P 500 index fund.

Such funds simply mirror the return of the index, less a small annual management charge. S&P 500 trackers are available in the UK. This index has been a strong performer historically (an annualised return of 17% over the past 10 years), but other options, including the FTSE 100 (11% annualised return) or FTSE World (14%) could also be worth considering.

Finally, while it’s unlikely you’ll ever come close to achieving the level of wealth Buffett has accumulated in his lifetime, history shows that long-term investing in the stock market makes financial independence a realistic goal for many people. Furthermore, as a general rule, the sooner you get started, the better.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple, Berkshire Hathaway (B shares), and Unilever. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool UK has recommended Burberry, Diageo, and Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Buy-backs

The Sage of Omaha has been spending a chunk of his Berkshire Hathaway investment vehicle’s cash pile buying some of its shares for the first time in six years and, like everything else he does, people have opinions about it. Russ Mould, investment director at AJ Bell, said this implies that Buffett “is struggling to find a company that he wants to acquire at a price he wants to pay.” He’s not the only one to take this view, as my colleague Paul Summers says if Buffett is hoarding his cash, we should all consider doing the same. 

The buy-back is actually Berkshire’s first major new investment in nearly three years, giving weigh to that view. However, equities actually represent 29.7% of Berkshire Hathaway’s assets, not far away from the vehicle’s high watermark of 32% in 1999. He may not see many buying opportunities, but he isn’t rushing to sell either.

A closer look at his portfolio suggests that his real concern lies elsewhere.

Discounted buy

Buffett and long-term business partner Charlie Munger like to buy shares when they are trading at a discount, and this applies to Berkshire Hathaway, too. That may be one reason why they decided to splash so much cash on their own shares, under a revised policy that frees him to decide when repurchases make sense.

This suggests to me that he thinks his favourite companies are trading on big enough discounts to make them worth buying right now, notably Berkshire portfolio stalwarts such as Wells Fargo, Apple, Bank of America, American Express and Coca-Cola.

Incidentally, some of these companies, notably Apple, are also buying back their own stock, giving Buffett a double kicker.

Cash is king

Let’s not get too carried away by these buy-backs. Berkshire spent $928m, which is only around 1% of Berkshire’s cash pile that has remained above $100bn for five successive quarters. Cash now represents 14.1% of Berkshire’s assets, down from 16% at the end of 2017, and way below the 24.5% of 2005. Buffett isn’t the only one who’s big on cash right now. 

So he is clearly keeping his powder dry and waiting for opportunities. At the same time, he’s cut exposure to US Government bonds to just 2.5% of Berkshire’s portfolio, continuing the downward trend dating back to 2003. Yields may have climbed to around 3.2%, but there are risks, namely that rising inflation will diminish the attraction of fixed interest investments. Also, as bond yields rise, prices fall, potentially inflicting hefty capital losses on investors.

Cut price shares

This certainly looks a tempting time to buy global equities, with the FTSE All-Share down 7.1% this year, MSCI Europe down 7.4%, Japan down 9.4%, and emerging markets down 12.3%, according to data from Thomson Reuters. Only the US is up, by just 1.4%.

Shares are down after October’s volatility and, with a Santa rally in the offing, now could be a good time to pick up some pre-Christmas bargains.

The post Warren Buffett’s buy-back tells us now may be a good time to go shopping for bargain stocks appeared first on The Twelfth Magpie.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.