Copying the actions of another investor is usually something I avoid. It can lead me to buying stupid stocks simply due to the fear of missing out (FOMO), without doing my homework first. However, the possible exception to this is with copying Warren Buffett. Via his company Berkshire Hathaway, he’s managed to generate consistent profits over several decades from good picks. So, what can I learn from his current portfolio?
A big fan of finance
Buffett is a fan of banking stocks at the moment. Within the portfolio, the company owns shares in Bank of America, Citigroup and Bank of New York Mellon. It’s clear that he sees value in this area going forward.
I agree with him in this regard. In the US, interest rates are rising at a pace similar to here in the UK. In fact, last night the US Federal Reserve increased interest rates again by 0.75%. For all of the banks that Buffett owns, it’s a major boost.
The core way a bank makes money is by paying for deposits, lending out money and charging for that service. The difference in the rate it pays and the rate it charges is the net interest margin, the profit that the bank makes. When interest rates are high, this margin gets bigger. With billions and billions of dollars flowing through the major banks, this margin can make a lot of profit.
I wouldn’t copy the great man directly and buy US banks. I’d rather stick closer to home and pick UK banks. Given the interest rate outlook, the same principle applies.
Large exposure to tech names
The other area that Buffett is positive on is technology. This is highlighted by his stake in Apple, along with holdings in Activision Blizzard and BYD Co.
Tech is a broad term that can extend to a lot of different areas. Activision Blizzard designs electronic games, with BYD focusing on making electric vehicles. Apple makes electronic goods. But all make use of technology to generate revenue.
I’m less confident about copying Buffett in this area. I recently wrote about why I disagreed with his very large (40% of portfolio) stake in Apple. I think that although the tech sector has suffered this year, a recession in the US and UK could easily see the share prices fall even further as investors look for defensive stocks.
I’d be happy to buy a small amount of stock in the big tech names, but think that the time to buy is probably nearer the end of this year or even early next year.
Being selective
Don’t get me wrong, Buffett has an incredible track record. All of the stocks he owns have been picked for good reason. What makes stock picking so great is that it’s very subjective, yet both Buffett and I can both succeed by having our own views. On that basis, I’ll copy some of his ideas and park others to one side.
