Warren Buffett is one of the greatest investors of all time. Through smart bets, Buffett has become one of the richest people in the world. He has also donated billions to charity in the process.
Buffett’s career has seen a number of big successes, ranging from his company, Berkshire Hathaway, buying a considerable part of Coca-Cola, to buying all of insurer Geico.
Given Warren Buffett’s history, here are three investing techniques and strategies that make him so highly regarded and they all relate to his Apple (NASDAQ: AAPL) stake.
Warren Buffett’s Apple purchase
Although he isn’t best known for buying tech company shares, Berkshire Hathaway famously has made tens of billions of dollars on the purchase.
The company initially bought some shares of Apple through the decision of one of his lieutenants in 2016. Later, Warren Buffett himself made the decision to buy Apple for Berkshire Hathaway in a big way. As a result of his purchases and Apple’s stock rise, Apple is one of his company’s largest holdings. In fact, Berkshire Hathaway’s Apple stake was worth $91.3bn around the middle of this year.
So what does this show us?
First, I think it shows how Warren Buffett is willing to adjust. Given the new digitally interconnected landscape, value investing in old industry isn’t the only path to success these days. Investing in technology companies with attractive growth potential, competitive advantages, and great management can also work.
Second, it reinforces Buffett’s quote belief that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” At the time of his purchase, the stock wasn’t seen as ‘cheap’ in many investors’ eyes. Before Buffett bought the stock, Apple had already been on something of a tear from the time when the company launched its wildly successful iPhone.
Third, I think it shows how Warren Buffett is smartly positioning his portfolio to take advantage of potential future trends.
In terms of future trends, many analysts think 5G and AI will be key. Indeed, according to ABI Research, market data suggests 5G/AI will lead to the creation of around $3.1trn worth of annual value in 2025. Of that amount, 41% could be driven by direct sales from the 5G value chain, which includes consumer subscriptions.
Given that Apple now sells 5G phones, the company is well positioned to take advantage of the trend, in my view. As AI advances and as 5G proliferates, I also think Apple could make even more money from its App Store. That could happen as developers create new apps that take advantage of those technologies.
In terms of potentially benefiting from Buffett’s strategies, I’d follow him by investing in Apple and holding for the long term. I wouldn’t buy Apple in isolation, however. I’d also buy the basket of ‘S&P 5’ stocks aside from Apple — including Amazon, Microsoft, Alphabet, and Facebook — and holding for the long term.
Although regulation could be a headwind, I think these collective stocks could still do well. I believe the collective stocks benefit from positive long-term trends.
The post These investing techniques are why Warren Buffett is so highly regarded appeared first on The Motley Fool UK.
Jay Yao has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Facebook, and Microsoft and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short December 2020 $210 calls on Berkshire Hathaway (B shares). 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.
Motley Fool UK 2020