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The 1 Investment Warren Buffett Wants You to Make – Motley Fool

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To say that Warren Buffett has been a successful investor over the past six-plus decades wouldn’t be doing him justice. Since 1964, Berkshire Hathaway‘s (NYSE:BRK.A)(NYSE:BRK.B) stock has risen by an average of 20.3% per year, and 2,744,062% in aggregate, through the end of 2019. On average, Buffett is outperforming the market four out of every five years and has delivered double-digit returns in nearly two-thirds of the past 55 years.

With that being said, it should come as little surprise that Wall Street and investors wait on the edge of their seats for Buffett to speak at his company’s annual meeting every year. Even though this meeting had a completely different vibe this year with no in-person attendance (thanks, COVID-19), it didn’t dampen investors’ quest to learn what the Oracle of Omaha has been up to in recent months, and what he foresees (if anything) happening from the coronavirus pandemic.

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Berkshire Hathaway CEO Warren Buffett at his company’s annual shareholder meeting. Image source: The Motley Fool.

Berkshire Hathaway’s Q1 report reveals a surprisingly minimal amount of buying activity

What we learned was somewhat surprising: Buffett hasn’t been that much of a buyer.

During the first quarter — Berkshire’s first-quarter operating results were released hours before the annual meeting began — Buffett and his team wound up buying $4 billion worth of equities and selling a little less than $2.2 billion. This worked out to a net purchase of around $1.8 billion. That’s really a drop in the bucket considering that Berkshire Hathaway ended the first quarter with an all-time record $137.2 billion in cash, cash equivalents, and short-term investments.

Also surprising was a slide Buffett showed the video audience that $426 million in equity purchases were made in April, compared to $6.5 billion in equity sales. In other words, if you add up Buffett’s investing activity since the beginning of the year, he and his team have been net sellers of equities to the tune of around $4.2 billion.

The Oracle of Omaha clearly opined in the shareholder meeting and subsequent question and answer session that he doesn’t know what’s going to happen in the near-term when it comes to the coronavirus. While Buffett doesn’t succumb to investing fear, he certainly seemed to be more willing to hang onto the company’s excess cash rather than put it to work in Q1.

Three golden eggs in a basket lined with one dollar bills.

Image source: Getty Images.

This is the investment Buffett thinks you should make

However, just because Buffett wasn’t an active buyer in the first quarter doesn’t mean that you shouldn’t be. In fact, Buffett’s discussion prior to the Q&A session primarily revolved around one core thesis: Don’t bet against America. In Buffett’s view, the best way to take advantage of the “American economic miracle,” as he put it, is to buy a cross-section of the American economy and hold it for very long periods of time, if not just forget it about it altogether.

Here’s Buffett’s exact advice to the average investor, along with the investment he suggests people make

In my view, for most people, the best thing to do is to own the S&P 500 Index Fund… You’re dealing with something fundamentally advantageous, in my view, in owning stocks. I will bet on America the rest of my life.

Though it may not be the sexiest of investments, the S&P 500 (SNPINDEX:^GSPC) tracking index, the SPDR S&P 500 ETF (NYSEMKT:SPY), does collectively get the job done for investors over the long run. We’re talking about an index that’s returned an average of 7% annually, inclusive of dividend reinvestment, over the long run. Put in another context, it doubles, on average, once a decade.

What’s more, the S&P 500 has undergone 38 official corrections of at least 10% (not rounded) since the beginning of 1950. With the exception of the current correction, each of the previous 37 moves lower in the stock market, no matter how swift or steep, were eventually put into the rearview mirror by a bull market rally. Organic growth at high-quality companies will continue to move the value of the S&P 500, and therefore its tracking index, the SPDR S&P 500 ETF, higher over the long run.

In other words, every single correction, and especially bear market declines, has proved an excellent time for investors to buy.

A bottom-up view of a number of tall skyscrapers.

Image source: Getty Images.

There are other ways to buy cross-sections of the American economy

But the SPDR S&P 500 ETF isn’t the only way to buy cross-sections of the U.S. economy. There are seemingly countless exchange-traded funds (ETFs) that allow investors to pick and choose their level of risk, focus, and diversification.

One of my favorites to reference is the ProShares S&P 500 Dividend Aristocrats ETF (NYSEMKT:NOBL). A Dividend Aristocrat is an S&P 500 company that’s increased its dividend for 25 or more consecutive years. This means Dividend Aristocrats are usually profitable, time-tested, brand-name businesses that have multinational and broad sector reach. Currently, the ProShares S&P 500 Dividend Aristocrats ETF has 58 members (IBM just joined) and is yielding 2.7% annually. Since these are mature companies, don’t expect them to trounce the market. But the ProShares S&P 500 Dividend Aristocrats ETF certainly brings a level of consistency that can be tough to duplicate.

But you know what else offers investors an opportunity to invest in a cross-section of the American economy? Berkshire Hathaway stock.

Warren Buffett’s company is best-known for its investment portfolio, which totaled 52 equities at the beginning of 2020, but has been whittled down to 48 holding as of late (Berkshire sold off all of its airline stocks in April). The Oracle of Omaha is a big fan of cyclical sectors, with banks, information technology, and consumer staples comprising the vast majority of total holdings.

But don’t forget that Berkshire also owns around 60 companies outright. These companies operate in the finance, retail, and transportation industries, to name a few. And to boot, Berkshire Hathaway’s stock has actually been 12% less volatile than the S&P 500 over the past five years. You won’t get a dividend owning Berkshire’s stock, but having Buffett has your portfolio manager certainly makes up for that.

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Investment

UBS raises 2024 forecast for S&P 500 after 'surge in AI investment' – MarketWatch

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UBS Group’s global wealth management business has raised its year-end target for the S&P 500 index to 5,200, citing drivers such as surging investment in artificial intelligence and stronger-than-expected company earnings.

The S&P 500, a gauge of large-cap stocks in the U.S., broke past 5,100 on Friday morning, after AI beneficiary Nvidia Corp.
NVDA,
+1.58%

on Thursday propelled the index to a record closing high of 5087.03, FactSet data show. Around midday Friday, the index
SPX
was trading slightly higher at about 5,097 as Nvidia’s shares continued to rise in the wake of its earnings beat.

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“It’s been over a year since ChatGPT first burst on the scene, which has unleashed an AI arms race that shows no signs of letting up,” David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, said in a note published after the market’s close on Thursday. “Our revised price targets suggest modest upside through the end of the year and we retain a neutral allocation to U.S. equities in our tactical asset allocation.”

UBS’s new year-end target of 5,200 for the S&P 500 is 200 points higher than its previous base case, according to a spokesperson for the bank. And its “upside scenario” for the U.S. equities index is now 5,500 for December, up from 5,300 previously, the spokesperson said in an email. 

“Despite recent mixed economic signals, we think the backdrop for U.S. equities remains supportive, driven by healthy economic growth, moderating inflation, a Fed that’s pivoting to rate cuts, and a surge in AI investment,” said Lefkowitz. “We expect three rate cuts in 2024 with the first one starting in June.”

The Federal Reserve’s benchmark interest rate is currently in the target range of 5.25% -5.5%.

Read: Goldman Sachs now sees first U.S. rate cut in June, just four in total for 2024

Under UBS’s “central scenario” for the S&P 500 this year, Lefkowitz expects “consumer spending should continue to be supported by healthy labor market dynamics.” The base case is linked to initial claims for unemployment insurance remaining low and jobs continuing to be added “in the most cyclical segments of the labor market,” he said, citing manufacturing and construction.

The S&P 500 has climbed 6.9% so far this year based trading levels around midday on Friday, after soaring 24.2% in 2023, according to FactSet data.

“Even though U.S. equities have performed very well in recent months, we think the key market drivers will remain supportive,” said Lefkowitz. “Not only were the fourth quarter results themselves better than we had expected, but the guidance was also solid,” he said of company earnings.

Under UBS’s “upside scenario,” AI is “a game-changer” in that its impact on productivity and earning growth is “larger and comes sooner than investor expectations,” according to the note. Also, inflation would be cooling faster than anticipated in UBS’s “upside” case for the S&P 500.

In the meantime, “some sentiment and positioning indicators” in the U.S. stock market appear “elevated,” prompting UBS to warn of “higher risk of a modest pullback in the coming months,”  said Lefkowitz. “That could offer investors a better opportunity to add to equity positions.”

The U.S. stock market was trading mostly higher around midday on Friday, with the S&P 500 up 0.2%, the Dow Jones Industrial Average
DJIA
rising 0.4% and the Nasdaq Composite
COMP
about flat, FactSet data show, at last check. All three benchmarks were on track for weekly gains.

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Investment

Business investment per worker fell 20% in 15 years amid weaker competition: StatCan – BNN Bloomberg

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Canadian business investment per worker plummeted by 20 per cent over a 15-year stretch, according to new Statistics Canada research that suggests weaker competition is partly to blame.

The report finds for every worker, businesses invested $628.80 less in their companies in 2021 than they did in 2006.

The decline was more significant in large and medium-sized companies and foreign-controlled businesses, though it’s unclear why that was the case.

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The report attributes nearly one-third of the drop to declining entry rates, or the number of new companies starting up by industry.

“Economists always believe that competition promotes investment. When you look at our data, there’s a decline in the share of new firms,” said Wulong Gu, the study’s author.

Canada is struggling to increase labour productivity amid low business investment, an issue that has been raised frequently by business groups and economists in recent years.

Capital investment, which refers to spending on everything from real estate to machinery, helps businesses grow and make their employees more productive.

That’s why economists argue capital investment is critical to growing the economy and improving living standards.

The report says the slowdown in investment coincided with a shift toward intangible assets such as brand equity and patents, which national statistical agencies don’t record as investments.

However, that shift doesn’t explain why business investment in Canada lags that in other countries, said Wu, because intangible assets are not recorded as investments elsewhere, either.

The study also found no relationship between profitability and business investment, which Wu said was “surprising.”

Canada’s competition watchdog released a report in the fall that found competition weakened over the previous two decades as profits and markups rose.

The Liberal government recently introduced several changes to the Competition Act after pledging to modernize the country’s competition law.

The Competition Bureau welcomed the amendments, which were inspired by its recommendations, but it’s hoping for even more ambitious changes.

In a news conference earlier this month, Finance Minister Chrystia Freeland weighed in on the issue of business investment and made a plea directly to CEOs to spend more on their businesses.

“We believe in you. We want strong Canadian-headquartered companies in this country,” Freeland said. “We need you to be investing in the productive capacity of this country, whatever sector you’re in.”

This report by The Canadian Press was first published Feb. 22, 2024.

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Investment

'Generate income without a paycheck': This investing strategy can make you money while you sleep – CNBC

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Financial sites across internet will tell you how you can earn passive income, but let’s be honest — a lot of what’s touted as passive income isn’t actually passive.

Take real estate investing. Once you buy a rental property, the thinking goes, your renters cover your mortgage and then some. Every time you hike the rent, that’s more profit in your pocket. Any honest real estate investor will tell you, however, that being a landlord is work — oftentimes quite a lot of it.

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If you want to generate income that’s truly passive, consider dividend investing. While relying on cash payouts from a stock portfolio is a common strategy for those nearing and in retirement, anyone can build an equity income portfolio, says Brian Bollinger, president of Simply Safe Dividends.

The goal for many users of his site, old and young, says Bollinger: “Generate income without a paycheck.”

Here’s the general gist. You invest in companies that regularly distribute a certain amount of money to their shareholders. If all goes well, you collect a growing pile cash each year while the stocks you own appreciate in value.

How dividend investing provides income

A quick refresher on how dividends work: Companies that earn excess profit can choose to return some of that money to their shareholders, as a sort of thank you, in the form of a regular cash payout. Some investors use these dividends as a form of income. Other, usually longer-term investors like to take those dividend payments and reinvest them, thereby boosting the return they earn on the stock.

For both types of investors, determining the attractiveness of a dividend comes down to the stock’s yield, found by dividing the amount of money an investor receives from a single share into the stock’s share price. If one share of stock costs $100 and comes with a $1 annual payout (a common configuration might be quarterly payments of 25 cents), its dividend yield is 1%.

Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.

Dividend income strategies to consider

Whether you’re choosing your own dividend stocks or investing through a mutual fund or ETF, you’d generally be wise to follow one of these two dividend strategies that aligns with your particular needs, experts say.

1. Higher yield

Investors looking to maximize their income may target stocks or funds that pay a high yield.

While the income such stocks offer can look juicy — individual stocks in the S&P 500 currently yield as high as 9.7% — you don’t have to think too hard about the calculation above to see why some yields are higher than others. The more a stock falls in price, the higher its yield climbs.

Companies that are in trouble not only provide shaky returns, but may be forced to cut the dividend as a result of poor financial results.

“Stuff that’s over 5% or 6% probably isn’t a good idea if you’re a risk-averse investor,” says Bollinger. “Even if the dividend does end up staying stable, it’s pretty unlikely to grow.”

One way to defray some of the risk is to invest in a broad basket of dividend stocks, says Todd Rosenbluth, head of research at VettaFi. “The benefits of diversification become really important,” he says. “Owning dividend stocks in an ETF can make a lot of sense for equity income-oriented investors.”

2. Dividend growth

Some dividend investors are happy to take a lower yield — maybe even not much higher than the S&P 500’s — to invest in companies that steadily grow their payout.

“I generally like to advocate for an approach of targeting great businesses that might pay closer to a 3% to 4% dividend yield,” says Bollinger. Such companies often steadily grow their payout, which boosts your annual income stream — a move that helps offset the effects of inflation, he says.

Among companies with smaller yields, “you’re usually looking at safer companies with safer payouts as well,” Bollinger says.

Not all stocks that yield in this range will grow their payout, and pros like Bollinger have created tools to help determine the whether a company is likely to, taking into account fundamental factors such as earnings growth, debt and trajectory of cash flows.

Short of that, many investors seeking steady dividend growth look to the past, relying on companies with a long history of dividend growth. The S&P Dividend Aristocrats index for instance, includes companies in the broader index that have hiked their dividend for at least 25 consecutive years. Stocks in the index currently yield 2.5%.

Many of these firms are established, financially mature companies, says Bollinger. Building a diversified portfolio of them, he says, can give you peace of mind that you’re building an underlying portfolio that will continue to grow alongside an expanding pile of passive income — regardless of swings in the market.

“When stock prices fall, it’s so easy to panic, but dividend investing can overcome that because you’re just trying to stay focused on your income stream,” says Bollinger. “You don’t care so much about the markets’ short-term ups and downs anymore.”

Want to land your dream job in 2024? Take CNBC’s new online course How to Ace Your Job Interview to learn what hiring managers are really looking for, body language techniques, what to say and not to say, and the best way to talk about pay.

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