Why Buffett’s investment philosophy could give YOU cause to celebrate

The legendary investor Warren Buffett, boss of the £390billion Berkshire Hathaway conglomerate, will celebrate his 90th birthday tomorrow.

But although Buffett has an £60billion stake in the business, he is famously frugal and so may do little more than enjoy an extra can of Coke.

He typically drinks five a day, supporting Berkshire Hathaway’s £15billion investment in Coca-Cola.

There is concern about Warren Buffett's failure, to date, to exploit the current economic slump in the same way that he seized opportunities in the global financial crisis

There is concern about Warren Buffett's failure, to date, to exploit the current economic slump in the same way that he seized opportunities in the global financial crisis

There is concern about Warren Buffett’s failure, to date, to exploit the current economic slump in the same way that he seized opportunities in the global financial crisis

But while the Sage of Omaha, celebrated for his aphorisms and acumen, is likely to enter his tenth decade in downbeat style, there is speculation as to whether he will mark the occasion with a deal. Could he deploy a big chunk of the company’s £110billion cash pile, answering critics who say he’s recently lost his touch?

During Buffett’s lifetime, there have been 15 presidents. Buffett has invested diligently during 14 of these presidencies, buying and holding ‘forever’ businesses that are ‘large, established and understandable’ whose share prices do not reflect the value of their assets. He either acquires the whole company, or a stake. But amid another US election, the Berkshire Hathaway express seems to be running out of steam.

The company’s Class A shares stand at around $327,000, down from $347,400 in January and many of his huge US fan base are asking what happened to Buffett’s credo: ‘Be fearful when others are greedy and greedy when they are fearful’.

The answer lies not in advancing age, but in the pandemic and Buffett’s preference for ‘understandable’ businesses, tricky when technology shares are soaring. The value approach has been displaced by the view that already-expensive shares are the must-have.

During the first quarter, the coronavirus market rout caused a £37billion loss in the value of Berkshire Hathaway’s portfolio. But profits were £19.8billion in the second quarter, thanks to the rebound of shares in Apple – in which Berkshire Hathaway owns a 5.7 per cent slice.

Apple is a consumer rather than a technology stock – in the opinion of Buffett and Charlie Munger, his 96-year old sidekick.

They also think that gold is an unproductive asset, making the decision this summer to invest in Barrick, the gold miner, something of a puzzle.

During the first quarter, the coronavirus market rout caused a £37billion loss in the value of Berkshire Hathaway's portfolio

During the first quarter, the coronavirus market rout caused a £37billion loss in the value of Berkshire Hathaway's portfolio

During the first quarter, the coronavirus market rout caused a £37billion loss in the value of Berkshire Hathaway’s portfolio

Another concern is Buffett’s failure, to date, to exploit the current economic slump in the same way that he seized opportunities in the global financial crisis. At that time, he bought battered bank stocks. 

Lately, however, there have been large disposals of bank and airline shares. But Buffett points to the different nature of the current recession: ‘In 2008 and 2009, our economic train went off the tracks. This time we just pulled the train off the tracks and put it on a siding.’

There is still a strong belief that Buffett’s investment principles remain relevant. The £91billion Apple investment embodies those rules. The stake was accumulated, at a total cost of £26billion, between 2016 and 2018 when Apple shares ranged from $97 to $156, against more than $500 today.

Apple has an ‘economic moat’, another Buffett essential. Its brand and the design of its sleek devices provide a protective barrier against competition.

The economic moat requirement drives the decisions of Buffett disciple Keith Ashworth-Lord, manager of CFP SDL UK Buffettology, a UK fund modelled on the veteran’s philosophy, and an Interactive Investor best buy.

He says: ‘If only I had a tenner for every time someone said Buffett’s lost the plot and he’s proven those critics wrong.’

This is still a widespread view, which is why Berkshire Hathaway shares are worth holding.

The A shares are a luxury purchase; the Class B shares, with fewer voting rights, are around $218. But anyone tempted to take a first-time bet should mark that, in May, Buffett warned of the need to be careful when wagering on his homeland.

He added: ‘Nothing can basically stop America. The American miracle, the magic, has always prevailed and it will do so again.’ Note, though, that he does not give a time frame. Turning 90 will not stop Buffett thinking long-term.

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