Tag: Warren Buffet

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Are U.S. Stocks Overvalued?

The U.S. stock market has been a topic of much debate among investors and analysts, especially regarding its valuation levels. As of the end of 2024, several indicators suggest that U.S. stocks might be overvalued.

Buffet indicator

One of the most watched metrics is the Buffett Indicator, named after the legendary investor Warren Buffett. This indicator compares the total market capitalisation of U.S. stocks to the country’s gross domestic product (GDP).

Historically, a ratio above 100% is considered overvalued. As of September 30, 2024, this ratio stands at approximately 208%, significantly above the historical average and suggesting that the market is strongly overvalued.

P/E and CAPE

Another important metric is the Price-to-Earnings (P/E) ratio, which measures the price of stocks relative to their earnings. The cyclically adjusted P/E ratio (CAPE), popularised by economist Robert Shiller, provides a long-term view by averaging earnings over ten years.

The CAPE ratio for the S&P 500 is currently around 35, well above the historical average of 16-17. This high level indicates that investors are willing to pay a premium for stocks, which could be a sign of overvaluation.

Several factors contribute to these elevated valuations. Low interest rates have played a significant role, making bonds less attractive and pushing investors toward stocks. Additionally, the rapid technological advancements and growth in sectors like technology, AI, and healthcare have driven up stock prices. Companies in these sectors have experienced significant revenue growth, leading to higher valuations.

High valuations

However, these high valuations come with risks. The market’s current levels are pricing in a lot of optimism about future growth and profitability. Any economic slowdown, policy changes, or unforeseen global events could trigger a market correction. Investors must remain cautious and consider the potential for volatility.

On the other hand, some analysts argue that the current valuation levels can be justified by the robust corporate earnings and strong economic fundamentals. They point out that the U.S. economy has shown resilience in the face of challenges, and many companies have adapted well to the changing environment.

Summary

In conclusion, while U.S. stocks are currently expensive and may be overvalued by historical standards, it’s essential to understand the underlying factors and potential risks.

Investors should stay informed, diversify their portfolios, and be prepared for possible market fluctuations. As always, a balanced approach to investing, considering both the potential rewards and risks, is crucial.

Always do your own and careful – RESEARCH! RESEARCH! RESEARCH!

An seek professional financial advice.

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Berkshire Hathaway at $1 trillion market cap – the first U.S. non tech company to do so

$1 trillion club

Warren Buffett’s Berkshire Hathaway achieved a $1 trillion market capitalisation on Wednesday 28th August 2024, becoming the first non-technology company in the U.S. to reach this business accolade.

The shares of the conglomerate, headquartered in Omaha, Nebraska, have surged over 28% in 2024, outperforming the S&P 500’s 18% increase. This major achievement came just two days before Buffett, often referred to as the ‘Oracle of Omaha,’ was due to celebrate his 94th birthday.

On Wednesday, the company’s shares rose by 0.8% to $696,502.02, surpassing the $1 trillion mark, as reported. The shares soared even further in the subsequent trading session.

One year chart for Berkshire Hathaway

One year chart for Berkshire Hathaway

The milestone serves as a testament to the firm’s financial robustness and the value of its franchise. It is particularly noteworthy given that Berkshire stands as one of the few remaining conglomerates today.

Buffett, serving as chairman and CEO, assumed command of Berkshire, a floundering textile enterprise, in the 1960s. He revolutionised the firm into a vast conglomerate covering insurance, railroads, retail, manufacturing, and energy sectors, boasting an unparalleled balance sheet and a formidable cash reserve.

Unlike the six other companies in the trillion-dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its old-economy focus as the owner of: BNSF Railway, Geico Insurance and Dairy Queen. (Although its sizable Apple position has helped drive recent gains.)

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Berkshire Hathaway sold nearly half its stake in Apple

Sell stocks

Warren Buffett’s Berkshire Hathaway significantly reduced its Apple stake last quarter, a surprising decision from the investor known for his long-term focus.

The conglomerate, headquartered in Omaha, reported in its earnings filing that its investment in the tech giant was worth $84.2 billion at the end of the Q2, indicating it sold just over 49% of its Apple shares. Despite the sale, Apple remains Berkshire’s largest equity holding by a wide margin.

It was widely reported that the sale is part of a larger trend of asset liquidation by Buffett during the second quarter, with Berkshire Hathaway divesting over $75 billion in stocks, thereby increasing its cash reserves to a staggering $277 billion.

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Quality investing advice from one of the best, if not the best investor the world has ever seen!

A Wise Owl

Warren Buffett, renowned as one of history’s most successful investors, has imparted invaluable insights that can help steer you on your investment path.

Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1

This straightforward statement has significant connotations. Although the aim of investing is to make a profit, it is just as important to avoid losses.

By reducing choices that put your portfolio at risk, you enhance the chance of earning profits. Consider it protecting your capital before pursuing returns. In contrast to those who gamble on the stock market, Buffett prioritizes careful risk management.

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

Rather than concentrating only on low-priced stocks, it’s wise to invest in outstanding companies with robust economic foundations and competitive edges. Although top-notch companies seldom seem inexpensive, their enduring profitability may warrant a fair premium. Notable firms that Buffett has backed include Apple, American Express, Coca-Cola.

Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble 

Be ready to grasp opportunities as they come. Instead of a small thimble, arm yourself with a bucket to gather the metaphorical riches. That is, capitalize on favorable market conditions and make smart investments when suitable chances emerge.

Invest in yourself 

Buffett advocates for self-improvement, highlighting the importance of effective communication, both written and verbal. Developing this skill can greatly enhance your value.

Diversify

Diversify your investments among various assets to mitigate risk. Look into index funds and exchange-traded funds (ETFs) – unit trusts, stocks and shares, gold and hold cash to achieve widespread diversification.

Start early

The effectiveness of compounding is maximized when you start investing early. Being consistently invested over time is more beneficial than attempting to predict market movements.

Automate

Establish automatic contributions to your investment accounts. Regular investments over time can result in significant growth.

The principles that capture the influence of fear and greed on investing were articulated by Warren Buffett.

Buffet advises: ‘Be fearful when others are greedy, and greedy only when others are fearful.‘ 

Fear and Greed

Fear

When investors collectively succumb to fear from ongoing stock market declines, they often resort to selling their shares, which in turn exacerbates the fall in prices.

Greed

In bull markets, it’s common for investors to exhibit excessive greed, pursuing rapid wealth and speculative trends.

Buffett’s wisdom

Warren Buffett, often referred to as the ‘Oracle of Omaha’, is known for his disciplined, long-term approach to investing. He specializes in value investing, which involves purchasing companies that seem to be undervalued by the market.

The rule

When others exhibit greed (buying aggressively), it’s prudent to exercise caution. On the flip side, when others are fearful (selling in a panic), it may be an opportune time to be greedy (buying at reduced prices).

Application

Fearful times

In times when fear prevails in the market, prices might plummet as a result of panic selling. Buffett advises exercising caution in these situations.

Greedy times

When others display excessive optimism (greed), it presents an opportunity to acquire undervalued assets.

Successful investing requires maintaining balance, adhering to fundamental principles, and steering clear of emotional extremes.

Investing is a marathon, not a sprint; hence, patience, discipline, and ongoing education are crucial.

Remember… ALWAYS do your own careful research! Or better still, take professional financial advice. Actually – just do both!

RESEARCH! RESEARCH! RESEARCH!

Disclaimer: this article is for informative purposes only! Do not trade nor invest unless you FULLY understand what you are doing – even then it is wise to take qualified financial advice.

Possible read: Buffet – The Biography (Amazon listing – other good outlets available)

Wikipedia: Warren Buffet

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Oxfam report says world’s five richest men have more than doubled their wealth in 3 years

Wealth

The world’s five richest men have increased their combined fortune from $405 billion in March 2020 to $869 billion in November 2023, according to a report from Oxfam.

Wealth increased at a rate of $14 million per hour for 5 people

A report by the charity highlighted the wealth of Tesla CEO Elon Musk, LVMH boss Bernard Arnault and family, Amazon founder Jeff Bezos, Oracle founder Larry Ellison, and investor Warren Buffett.

Oxfam is calling for restrictions on ‘corporate power’ to reduce the massive inequality between the super-rich and the rest of society. Two of the suggestions to correct the inequality is through capping CEO pay and introducing taxes on permanent wealth and excess profits.

This report was released to coincide with the Davos meeting as the rich and wealthy business leaders and bankers gather.

Oxfam says

  • Fortunes of five richest men have shot up by 114% since 2020.
  • Oxfam predicts the world could have its first-ever trillionaire in just a decade while it would take more than two centuries to end poverty. 
  • A billionaire is running or the principal shareholder of 7 out of 10 of the world’s biggest corporations.
  • 148 top corporations made $1.8 trillion in profits, 52% up on 3-year average, and dished out huge payouts to rich shareholders while hundreds of millions faced cuts in real-term pay.
  • Oxfam urges a new era of public action, including public services, corporate regulation, breaking up monopolies and enacting permanent wealth and excess profit taxes.

Full report here

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Berkshire Hathaway posts a 40% jump in operating earnings

A wise investor

The Omaha-based conglomerate’s operating earnings totalled $10.761 billion last quarter, 40.6% higher than from the same quarter in 2022.

Berkshire held a record level of cash at the end of September 2023 of $157.2 billion.

The ‘Oracle of Omaha’ has been taking advantage of surging bond yields, buying up short-term Treasury bills yielding at least 5%.

Geico, the crown jewel of Berkshire’s insurance empire, reported another profitable quarter.

Warren Buffet probably the greatest consistent investor the world has ever seen.

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‘Be fearful when the markets get greedy, be greedy when the markets get fearful’.

Sage investor owl

Warren Buffet

Warren Edward Buffett is an American businessman, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. As a result of his immense investment success, Buffett is one of the best-known fundamental investors in the world.

As of October 2023, he possessed a net worth of $117 billion making him the seventh-richest person in the world.

Warren Buffet
An investor looking at paperwork before buying a stock. ‘Be fearful when the markets get greedy, be greedy when the markets get fearful’.
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Why doesn’t Warren Buffet like Bitcoin?

Warren Buffet

Warren Buffett is one of the most successful investors in the world, but he is also one of the most vocal critics of Bitcoin.

  • He believes Bitcoin is not a productive asset and does not produce anything tangible. He compares Bitcoin to farmland or apartment houses, which generate rent and food, while Bitcoin only relies on the demand and supply of the market.
  • He thinks Bitcoin is not a durable means of exchange and not a store of value. He argues that Bitcoin is too volatile, too unpredictable, and too susceptible to fraud and manipulation.
  • He says Bitcoin is bad for civilization and attracts charlatans. He believes that Bitcoin is used for illicit activities, such as money laundering and tax evasion, and that it lures people into scams and speculation.

Opinion not all agree

These are some of the opinions that Warren Buffett has expressed about Bitcoin over the years. However, not everyone agrees with him, and some people think that he is missing out on a revolutionary technology that could change the world.

What do you think? Is he right; or is it a revolutionary technology that is changing our world?

Watch out for the Bitcoin EV revolution that is about to take off!