As 2023 draws to a close, it’s often a smart time to think back on the lessons learnt from the year. I always keep a track on Warren Buffett and his actions, given his pedigree as one of the best investors in our generation. He’s has a very busy year with plenty going on. Here’s what I garnered from the great man this year.
Not afraid to go big
In the early part of the year, it was revealed that Buffett was holding a lot of his portfolio in Apple shares. In the spring, it made up 38.9% of his total holdings.
Apple shares are up 31.6% over the past year, so clearly this large investment has paid off. It goes to show that even though diversification of stocks is the best plan most of the time, sometimes a high conviction idea does justify a large stake.
The caveat to this is that Buffett is a very experienced investor and knows what he’s doing. For less experienced retail investors, this can be a riskier approach.
Sitting on cash
Another story of 2023 has been the large cash holdings Buffett has accumulated. This sat at $157.2bn in the latest update.
It’s clear that he’s waiting for opportunities to present themselves before diving in. He’s still been buying stocks throughout the year, but is keeping some dry powder ready.
This is a good lesson for me. Often I don’t keep a cash buffer and simply invest when I have free money. This could hamstring me in the future if I don’t have cash to buy stocks when it’s a good time.
The power of dividends
A headline from this year was that Buffett made $736m in dividends just from his stake in Coca-Cola. He’s owned and increased his holding in the beverage maker over several decades.
Even though the dividend yield of Coca-Cola is a relatively modest 3.15%, the benefit of compounding and from having invested a long time ago has really helped Buffett. The power of the dividends is really shown from just this one example.
It shows me that being patient and holding for the long term can often yield better results than trying to simply pick the highest yielding stock of the moment.
Adapting as time goes by
During the year, Buffett bought and sold plenty of stocks. Even though he lives by the mantra that “our favourite holding period is forever”, he knows that the world changes and so does his view on the market.
A stock he though he might buy at the start of the year isn’t necessarily the stock he would buy right now. It’s important to be flexible and adapt to the times.
A great example of this has been artificial intelligence (AI) stocks. I’m pretty sure Buffett didn’t have this as top of his agenda at the start of the year, but now it warrants a bigger conversation.
In the same way, I need to keep an open mind. As we head to 2024, no doubt I’ll need to be reactive to the changing themes too!
