Why Warren Buffett Just Made a Huge Mistake

Editor’s Note: Our experts here at INO.com cover a lot of investing topics and great stocks every week. To help you make sense of it all, every Wednesday we’re going to pick one of those stocks and use Magnifi Personal to compare it with its peers or competitors. Here we go…

Sometime in the third quarter of last year, legendary investor Warren Buffett’s Berkshire Hathaway Inc. (BRK-A) took a $4 billion stake in Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), the Taiwanese contract chipmaker.

With TSM being the world’s largest and most valuable semiconductor fabricator with chips in most high-tech equipment the world over, and with Warren Buffett’s reputation for making extremely savvy investments, lots of people took notice.

But just a few months later, Buffett seems to have said “never mind” and sold more than 85% of his stake.

We have no insight into Buffett’s thinking, but it does seem odd for a buy-and-hold value investor to sell a great company that is so cheap. TSM is a well-run business with wide competitive moats and big profits. Yet, the stock is at a discount to its peers, at 17 times forward earnings.

By comparison, its rival Intel Corp. (INTC) — thanks to its crashing profits — has a price-to-earnings ratio (p/e) in excess of 60 times. And the company just slashed its dividend.

So, we thought it would be interesting to compare TSM to INTC using the Magnifi Personal compare function. Comparing two or more stocks has never been easier than with Magnifi Personal. All you had to do was type “Compare TSM and INTC” and Magnifi Personal showed us this:

Compare TSM and INTC

This is an example of a response using Magnifi Personal. This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including INO.com’s relationship with Magnifi. Continue reading "Why Warren Buffett Just Made a Huge Mistake"

Owning Berkshire Is Like Owning An ETF

Over the past 10 years, the ETF market has exploded and changed the way most investors invest. The ability to find a fund that focuses on specialized niche markets or just plow money into a major index fund has never been easier or more accessible to the average investor.

In the past, investors would have to have minimum amounts of money invested in a mutual fund, and the liquidity of those funds was very limited. Thus, it is difficult to get into and out of if and when you need the cash. But ETFs have changed all of that. No minimum amounts, no liquidity problems, and not to mention the very low fees, typically much, much lower than what you will find with a traditional mutual fund.

However, one equity that investors have been able to buy for years and decades has essentially offered, and still does, investors everything a large index ETF offers, but with even lower fees. That stock is Berkshire Hathaway (BRK-A, BRK-B). The stock that the famed investor, Warren Buffett, owns and stills runs to this day, despite being 91 years old.

Due to its large swath of companies, it owns Berkshire outright, and its investment portfolio is essentially a large index ETF, except you don’t have to pay fees. Berkshire’s current equity portfolio consists of 44.5% in technology companies, 30.3% in Financials, 12.7% in consumer staples, 4.7% in consumer discretionary, and 3.3% in telecommunications. Its largest holding is Apple at $120 billion, representing about 1/6th of Berkshire’s total market cap. But is still smaller than the companies most recent cash pile of $144 billion.

Most ETFs wouldn’t be permitted to have such a large cash pile, but Berkshire is because it's not an ETF. This cash allows the company to make deals and buy stocks when prices are primed and juicy. This has allowed Buffett and company to take advantage of some serious market miss pricing. In addition, it gave the company the ability to make very favorable deals during the financial crisis when companies were in dire need of cash. Other investors didn’t have the means or funds available, but Buffett did, and it paid off big time.

While most investors don’t think about the low fees index ETFs charge these days (and honestly, most of the big S&P 500 index ETFs have fees so low, they don’t really matter), the fact remains that once you buy BRK-B or BRK-A, if you have $425,000 lying around, you don’t pay any expenses as long as you own the stock.

Unfortunately, though Berkshire doesn’t pay a dividend, the company doesn’t give you an idea of what it will invest in, unlike most ETFs. ETF managers are typically required to adhere to the ‘fund invest prospectus,’ which spells out the goals and investment strategy of the fund. Essentially telling investors what industries and types of companies it will be investing in. With Berkshire, you buy and are signing up to allow Warren and his team to drive you down whatever road they decide to go on.

With that being said, Buffett’s track record has proven to be better, actually much better than fund managers track records over the course of not just a few years, but decades. Moreover, Buffett doesn’t have to adhere to certain rules and can buy companies whole; he has an advantage that fund managers don’t.

However, Warren did recently turn 91 years old. And his longtime partner Charlie Munger is 97. So, it's easy to make the argument that Berkshire may not be the same company in the future as it has been in the past, simply due to Warren’s and Charlie’s age. However, investors have been concerned about this for years, and Warren and Charlie are confidently handing the reins over to Todd Combs and Ted Weschler, who have proven themselves over the last few years as investors who may someday rival their two predecessors.

ETFs are great, and most investors should own them over trying to cherry-pick stocks. However, if you are a stock cherry picker or strictly a fund investor, you should still consider Berkshire as an investment since it's sort of the best of both worlds.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor Thalman owns shares of Berkshire Hathaway and Apple at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Warren Buffet Would Love This Cannabis Stock

Analysis originally distributed on July 27, 2017 By: Michael Vodicka of Cannabis Stock Trades

In early 2017 Forbes ranked Warren Buffett as the world’s second richest man with a net worth of $72 billion.

Unlike most other billionaires on the list, Buffett didn’t get rich from owning just one company. Berkshire Hathaway Inc. (NYSE:BRK.B) functioned like a giant mutual fund, investing in many companies from different industries all across the economy. That way, if one industry or company struggled, it wouldn’t crush Berkshire’s performance.

At the core, this is a lesson in diversification. Putting all your eggs in one basket can be risky.

That is particularly true in the cannabis sector. It is a super young industry and cannabis stocks can be quite volatile.

I want to share a cannabis stock that Warren Buffett would love. Continue reading "Warren Buffet Would Love This Cannabis Stock"

Did Warren Buffett Get It Wrong With Apple?

Hello MarketClub members everywhere. After years of avoiding tech stocks and missing the tech boom, legendary investor Warren Buffett purchased through Berkshire Hathaway 9.8 million shares of Apple on May 16th, worth roughly $1.07 billion, according to a filing for the first quarter with the Securities and Exchange Commission.

What's interesting here is hedge fund giant, David Tepper, exited his 1.2 million stake in Apple and in April, Carl Icahn said he no longer holds any shares in Apple.

MarketClub's Mid-day Market Report

So who is right? David Tepper and Carl Icahn for selling their shares of Apple Inc. (NASDAQ:AAPL) Or Warren Buffett for buying the stock? Well, it all begins with your time perspective. In the case of David Tepper and Carl Icahn, they tend to be traders as opposed to Mr. Buffett, who tends to be a long-term investor. Now I can say this about Mr. Buffett; he is not a tech guy and he missed out on the big move in all of the tech stocks. So if you are a long-term investor, it may not be a bad move to buy Apple. If you're more of a trader, then you probably want to be out of the stock of the moment.

Here is my take on Apple. Continue reading "Did Warren Buffett Get It Wrong With Apple?"

Markets Down More Than 8% To Start 2016! What You Should Do Now

Matt Thalman - INO.com Contributor - ETFs

Buy! Buy! Buy!

We have all heard the saying, buy low, sell high, which is an easier to understand saying than Warren Buffett's famous quote, "Be fearful when others are greedy and greedy when others are fearful."

With the major US indexes all down more than 8% to start 2016, it would appear this is the time to follow the above-mentioned advice. Stock prices in general, based on the major indexes are 8% cheaper than they were just half a month ago, hence, buying today is buying low. Buffett's advice follows that idea and tells us to be greedy when others are fearful. The market is moving lower, indicating that the majority of investors are fearful of where stock prices will be in the future. If we follow Buffett's advice, this is a good time to be greedy.

I know what you are thinking, can't prices go lower from where they are today, giving you an even better opportunity to 'buy low' in the future. Yes, that obviously could happen. Continue reading "Markets Down More Than 8% To Start 2016! What You Should Do Now"