Berkshire Hathaway’s earnings report last weekend indicated that Warren Buffett had been mostly selling stocks between July and September, rather than buying them. Furthermore, the company’s cash pile reached $157bn – its highest-ever level.
The Oracle of Omaha clearly isn’t seeing anything hugely attractive to do with Berkshire’s cash at the moment. But there are a few reasons why I don’t see this as a sign that investors like me should be wary of investing in the stock market today.
Size matters
Berkshire’s size means a lot of stocks are just too small to make a meaningful difference to its portfolio. By my calculations, any business with a market cap below $60bn (£49bn) is probably too small for Buffett to even consider!
That rules out most of the FTSE 100 and all of the FTSE 250. Only 11 UK shares are currently big enough to even put them on Buffett’s radar.
Investors like me don’t have this difficulty, though. Since I don’t have such a big portfolio, I can take advantage of opportunities in pretty much any UK stock.
In other words, the fact that the 11 UK companies big enough to be relevant to Buffett’s investing aren’t attractive at the moment doesn’t mean that none of the others are. And I think there are good opportunities in the FTSE 250 especially right now.
Home advantage
I think being based in the UK is another reason for thinking I might be in a position to buy shares when Buffett isn’t. The chances of finding a stock trading at an attractive price are higher – in my view – in a region that fewer investors are looking at.
Collectively, UK stocks have underperformed their US counterparts. This is partly due to higher taxes and a smaller domestic market.
But I’m not looking to invest in stocks as a group, I’m looking for individual opportunities. And I think investors overlooking the UK means there are more likely to be businesses that are doing well but flying under the radar.
Buying shares
In my view, Warren Buffett is one of the best investors around – I listen to what he says and I pay attention to what he does. But I don’t just copy his investments and I think there are opportunities for me right now to pick from a huge range of stocks.
I’m focusing on UK companies that are too small to be meaningful additions to the Berkshire portfolio. A good example is Forterra.
The share price is down 27% since the start of the year, mostly as a result of the UK’s construction output falling. I think this is a temporary issue though, so I’m looking to buy it before the price recovers.
Interest rates staying high might weigh on demand for housebuilders for some time. But I think the current share price is overestimating the significance of that risk.
With a market cap of just under £300m, Forterra is way too small for its shares to be a meaningful investment for something the size of Berkshire. But that’s ok with me – I’m happy to take the opportunity myself.
