OUR PERSONAL FINANCIAL ADVICE BEGINS WITH ONE QUESTION: WHAT MATTERS TO YOU? juliusbaer.com Bank Julius Baer & Co. Ltd., Lefebvre Court, Lefebvre Street, St Peter Port, Guernsey GY1 4BS, T +44 (0)1481 726618 Bank Julius Baer & Co. Ltd., Guernsey Branch is licensed in Guernsey to provide banking and investment services and is regulated by the Guernsey Financial Services Commission. 64 <strong>En</strong> <strong>Voyage</strong> | Aurigny’s Magazine
Business WHAT WOULD WARREN BUFFET DO NOW? BY CRAIG ALLEN, HEAD OF INVESTMENT MANAGEMENT, JULIUS BAER GUERNSEY CRAIG ALLEN Most people would agree that the greatest investor alive today is Warren Buffett. Mr Buffett, aged 88, is the CEO and Chairman of Berkshire Hathaway, which in turn holds substantial positions in many household names. These include Apple, Coca-Cola, Kraft Heinz, American Express, Goldman Sachs and JP Morgan. Buffett bought his first stock aged just 11 and over the years he has learnt this it is best to buy, hold and not to watch the markets too closely. Buffett continues to lead a relatively modest life in the US and has amassed a wealth of more than $80bn over a lifetime of investing in financial markets. He has pledged to give away the vast majority of his fortune to philanthropic causes. Buffett’s strategy is to remain virtually fully invested at all times, investing into high quality dividend paying stocks with strong brands and high barriers to entry. He does not attempt to time the markets by selling near to the top. Indeed, he rarely sells any of his holdings at all, preferring instead to benefit from the power of compounding over time. In fact, Buffett famously once said that ‘our favourite holding period is forever’. He is human though and does therefore make mistakes from time to time. This includes a well-publicised loss on Tesco shares a few years ago. Given the very high income that is generated from his portfolio of investments, Buffett has the luxury of a cash pile that builds up every day. Whilst Buffett advises against market timing, he does recommend that investors should buy when others are fearful and sell when everyone else is greedy. In this vein, Buffett has invested material amounts of his excess cash pile three times over the last 10 years. Firstly, during the Financial Crisis in the fourth quarter of 2008, Buffett invested $5bn into Goldman Sachs. At that time, many people thought that most banks were insolvent and would declare bankruptcy. As part of the deal, Buffett achieved a guaranteed yield of 10% per annum plus the WHILST BUFFETT ADVISES AGAINST MARKET TIMING, HE DOES RECOMMEND THAT INVESTORS SHOULD BUY WHEN OTHERS ARE FEARFUL AND SELL WHEN EVERYONE ELSE IS GREEDY ability to buy further Goldman Sachs shares in the future at a pre-determined level. Interestingly, Buffett was too early in his timing as the stock fell substantially after this purchase was announced. Ultimately though, he made approximately $3.1bn over the next five years for his investors, demonstrating how market timing is both impossible and not overly important as long as the underlying investment is sound. Buffett’s next material purchases were during the European Sovereign Debt Crisis in the summer of 2011 when he bought IBM and Intel shares. This was his first foray into technology shares, having previously shunned them during the dot.com boom of 1999. It was subsequently revealed that Buffett invested a total of $24bn into stocks during the six-month period to October 2011, just when many investors were fleeing equity markets due to concerns around Greece and a possible break-up of the Euro. The IBM investment was not a success, but the total of $24bn invested over this six-month period resulted in material gains for his investors. More recently in October and November 2018, Buffett added to his positions in Apple and Goldman Sachs as well as buying a new position in JP Morgan. This has resulted in a large proportion of his exposure being in banking stocks for the first time in his career. In each case over the last 10 years, Buffett used global stock market volatility and short-term politically driven noise to invest into high quality companies on weakness. Whilst most investors would admire Warren Buffett and agree that he is the most successful investor on the planet, sadly few investors act like him and instead attempt to time the markets and to focus on the political and macro environment. Looking at Buffett’s strategy, a more sensible approach would appear to be ‘buy and hold’, topping up exposures on weakness in the event that cash becomes available. The question that readers should therefore ask themselves is ‘What would Warren Buffett do today?’ 65
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