Warren Buffett recently released his latest letter to shareholders. This letter normally contains a few pearls of wisdom that help us all become better investors.
This doesn’t tend to be things like “buy Apple shares”, but broad investing advice that helps us make better decisions for our financial futures.
So, what did he say this time?
Committed to stocks
Buffett, who has a net worth in excess of $125bn, reiterated just how committed he is to investing in stocks with this statement: “I can’t remember a period since March 11, 1942 (…) that I have not had a majority of my net worth in equities.”
That’s might sound obvious for a guy with a net worth $125bn. It’s not like he could have most of his net worth in his home, as most Britons do. But it’s also interesting that he’s been this way for over 70 years.
He’s also been mostly in stocks, not cash, not debt. He believes companies are the best way to continue building wealth.
So, why do I think this is so important for UK investors? Well, most of us have more than half of our net worth in our homes. And I get it. Housing is expensive in the UK.
While there’s an acute shortage of housing in the UK, in the long run I can’t see house prices increasing significantly above country’s growth rate — which is slow.
Yes, it can be better to pay a mortgage than to ‘waste’ money on rent, but we’ve also got to consider the opportunity cost of not having our money invested.
For instance, around half of my net wealth recently went into a house purchase. But my portfolio is up 25% over the last four months. I would have missed out on all that wealth generation — equivalent to half my take home salary — if I tried to minimise my mortgage and maximise equity in my home.
One stock I’m committed to
One stock I’m committed to is Super Micro Computer (NASDAQ:SMCI). The company essentially provides server systems — super powerful computers — that have the capacity to process thousands of computations at once.
Super Micro has ancillary offerings, but its server and storage business has really sent earnings into overdrive. By stacking Nvidia‘s AI-enabling chipsets and using its proprietary cooling technology, Super Micro is providing the processing capacity needed for the generative AI-revolution.
The thing is, while Super Micro stock is up 760% over 12 months, we’re just at the start of the revolution in AI, and with its first-to-market strategy, the San Jose-based firm looks set to benefit from a multi-year windfall.
I absolutely understand that there are very high expectations on Super Micro after three successive earnings beats and the share price surging. And if it does fail to deliver in one quarter, the stock could recoil.
However, with a price-to-earnings-to-growth ratio of 0.8 and a dominant position in a surging industry, Super Micro is a stock I’m committed to.
