What echoed through the latest Berkshire Hathaway’s annual meeting has, in general, transpired well with many investors. Views that ‘nobody said good stock selection and portfolio management means you never have duds’ explained through the moves on investments made over the years by the company, have widened the scope of principles that investors might keep in mind. With this backdrop, the latest AGM entailed discussions on investment topics that included the error in decision about Wells Fargo that fell prey to a scandal, and investment landscape changes that led the company to include some technology stocks and exclude a few. Below are some key aspects that have gained attention through these discussions:
Index fund investment is good
Berkshire Hathaway’s Warren Buffet believes that investment in Index Fund would be a great investment opportunity for gains. It has been specifically highlighted that the best investment for people looking for the least amount of worry is an Index Fund. Mr. Buffet prefers low-cost index funds. Another investment area that got highlighted is the pot stocks’ zone that witnessed a pullback recently, giving out potential buying opportunities.
Reshuffling Technology landscape for Investment
Mr. Buffet has sold around one-third of Berkshire Hathaway’s big stake in IBM Corp at the back of the fact that IBM has not done that well as earlier thought. Mr. Buffet owned about 81 million shares of IBM at the end of 2016 and sold about a third in first and second quarters of 2017. The company, however, has doubled its stake in Apple in the first quarter as Mr. Buffet said he looks at Apple more as a consumer stock than a tech bet. Apple is today one of the Berkshire’s biggest equity holding.Berkshire also lost on figuring out an investment in Google at an appropriate time and had avoided tech stocks for a while.
Compared to technology, transportation looks attractive
It was further voiced that Chinese stocks looks cheap but one can’t invest at a large scale. The company invested in Shanghai airport which is the main airport in China with no debt net. In America, the company has invested in the four largest US Airlines. The company has also acquired BNSF Railways in full and has also taken smaller stakes in several major railroad companies. When asked about investments in Airlines and Railroads, Mr. Buffet responded that Airline don’t have the competitive advantages of railroads, and railroads are a lower-cost option than other methods of transporting freight and have lower operational expenses. Comparatively, Airlines have highly competitive environment and the fundamentals of the business are not as attractive. Mr. Buffet feels that few major airlines are positioned to grow revenues over the coming years as they are operating at 80% or better of capacity. All the four airlines Berkshire owns having been producing strong returns on invested capital and have been buying back stock fairly aggressively.
Managing cash on balance sheet
The company’s balance sheet has $96.5 billion in cash and Mr. Buffet said it would like to maintain at least 20 billion in liquid cash on balance sheet and balance of $76.5 billion for acquisition /or stock investment. There could be a possibility that Berkshire enters a $150 billion deal, if it becomes ready to take some debt and/or sell some stocks. The Company has acquired Precision Castparts in the past. The company is looking out for acquisition of those companies that have competitive advantage over the next five to ten years and have strong management capabilities. The company may prefer to enhance their buyback criteria of 120% of book value or less but the focus would remain to deploy company’s capital.
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