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.
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.
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.
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.
This Top TSX Gold Stock Is a Great Long-Term Investment – The Motley Fool Canada
There is no question this economic environment is ideal for gold prices and, therefore, TSX gold stocks. However, some gold stocks are so strong, investors can buy the stocks knowing they are great long-term investments.
Gold is something investors should always have at least a small portion of their portfolio exposed to. And in times of uncertainty, when a safe-haven asset is demanded, that’s when investors should be increasing their exposure to gold.
Today’s environment is precisely that. The uncertainty in both financial markets and economies makes a safe-haven asset like gold one of the most attractive assets to be increasing exposure to.
TSX gold stocks today
The economic environment around the world has been dire since the coronavirus pandemic hit. With no vaccine and little knowledge of the deadly disease, governments had to act quickly to protect their countries, enacting measures that have decimated economies.
Then, to deal with the economic consequences, massive fiscal and monetary stimulus has taken place around the world.
While this stimulus was needed and warranted, it doesn’t take away from the fact that central banks are printing money and governments are issuing new debt at unprecedented levels.
All of these conditions are creating the perfect storm for gold prices to rise. Some analysts even think that gold could skyrocket to $3,000.
Gold prices have been gaining momentum going back to December of 2018. In those 17 months since, prices have increased roughly 40%, an extremely rapid pace for gold.
And when you consider that the environment today is even more favourable than it was in 2018 and 2019, increasing exposure to gold investments is a no-brainer.
Top TSX gold stock to buy
Any time the price of gold is rising significantly, gold stocks will see a major positive effect. Since December 2018, the iShares S&P/TSX Global Gold Index ETF is up roughly 100% and more than double the pace of gold.
Barrick, a $60 billion company, is one of the world’s largest gold producers and an investor favourite in the gold industry.
The company is one of the best in the business, and, with its massive global diversification, it’s a stock you can hold for the long term.
In the first quarter, Barrick produced incredible results. The average realized gold price was $1,589 — a 22% increase from the same quarter in 2019.
That increase in gold price drove a 30% increase in revenue and a roughly 50% increase in operating and net income.
And when you consider that the average realized price in the quarter is nearly 10% below where gold is today, it’s clear this company is going to have a strong period of performance over the near term.
One of the reasons Barrick is so attractive today is the focus management has had on cutting costs and increasing shareholder value.
In the first quarter, the company produced nearly 1.25 million ounces and had all in sales costs of just $950 an ounce.
So, it’s no wonder why Barrick, the top TSX gold stock, is so profitable in the current environment and will continue to increase its profitability as gold prices rise.
Barrick’s solid operations and high-quality management team makes it one of the top gold stocks on the TSX.
It even pays a dividend that yields more than 1%. While this isn’t going to make or break your investment, it demonstrates management’s willingness to return capital to shareholders.
If you are underweight gold or need some resiliency in your portfolio, I would seriously consider adding a position in Barrick Gold today.
As we approach a new month, check out some of the other top stocks to buy besides Barrick.
Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.
A case study in how not to invest in bank stocks – The Globe and Mail
I have two investments I just don’t understand: BK and BK.PR.A. They were purchased by a financial adviser I have since parted ways with. I know they invest in bank stocks, but I can’t understand why BK in particular is doing so badly. I feel that these shares are a special type of investment that is more complicated than most.
More complicated than most? That’s an understatement. Your adviser shouldn’t have recommended a product you don’t understand. What’s more, as you’ll see, the adviser’s recommendation to buy BK and BK.PR.A together makes no sense from a financial standpoint – except for the fat commission he or she likely pocketed in the process.
BK and BK.PR.A are two different classes of shares issued by Canadian Banc Corp., an investment vehicle known as a “split share” corporation. Canadian Banc Corp. holds a portfolio of the six biggest Canadian bank stocks, and while BK and BK.PR.A both provide exposure to those underlying stocks, they do so in different ways and with dramatically different results.
BK.PR.A, the preferred shares, are relatively stable. They don’t participate in the ups and downs of the underlying banks, but they pay a fairly secure dividend that is funded by the dividends from those shares. The preferreds also get first claim on the capital of the underlying portfolio up to the preferred’s issue price of $10 a share.
Adding yet another layer of protection, although BK.PR.A’s dividend is variable because it is tied to the prime lending rate, BK.PR.A’s yield is never allowed to drop below 5 per cent, as calculated on the $10 issue price. (BK.PR.A has been trading slightly higher than $10 recently, so the yield based on the market price is currently a bit below 5 per cent.) Reflecting its conservative characteristics, BK.PR.A has produced steady returns over the years, and is a suitable choice for an income-seeking investor.
BK, the class A shares, are a different story. Essentially, the class A shares (also known as capital shares) are entitled to all of the value in Canadian Banc Corp.’s bank stock portfolio after the preferreds’ dividend and fixed capital requirements are satisfied. This means the class A shares are effectively a leveraged bet on the underlying stocks. If bank stocks rise, the class A shares will rise even more. If bank stocks fall, the class A shares will suffer an even bigger loss.
The sell-off triggered by the novel coronavirus pandemic is a great illustration. From Feb. 21 through May 28, BK shares plunged about 37 per cent. That’s far worse than the drop of about 22 per cent for the BMO Equal Weight Banks Index ETF (ZEB), a fund that holds the same six banks – but with no leverage, and lower costs.
BK also pays a dividend, but it’s anything but stable. The dividend is reset monthly to yield 10 per cent based on BK’s average market price over a designated three-day period, which means the dollar amount of the dividend will rise in good times, and fall in bad times.
When markets get really ugly, however, BK’s dividend can disappear altogether. Even though none of the underlying banks has cut its dividend, BK suspended its payout in March after the net asset value per unit of Canadian Banc Corp. fell below the threshold of $15 that triggers a cessation of dividends on the class A shares. BK has since reinstated its dividend, but the monthly amount is about 40 per cent lower than it was a year ago.
You may be wondering how BK can pay a 10-per-cent dividend when the preferred shares are already yielding 5 per cent. According to the prospectus, “to supplement the dividends received on the portfolio and to reduce risk, the company will from time to time write covered call options in respect of some or all of the common shares in the portfolio.”
But many split share corporations also resort to selling stocks in the underlying portfolio to generate cash required to pay dividends on their class A shares, said James Hymas, president of Hymas Investment Management. “It is my belief that, if people understood class A split shares, they wouldn’t buy them.”
With the rebound in bank stocks this week, BK has recovered some of its hefty losses. But its total return, including dividends, for the five years through May 27 was still negative 1.2 per cent on annualized basis, according to Bloomberg. Over the same period, ZEB posted a positive annualized total return of 4.6 per cent. Clearly, an investor who wanted exposure to bank stocks would have been better off buying a low-cost bank ETF instead of a leveraged product such as BK.
What’s more, your adviser should have known that, although BK and BK.PR.A have different characteristics on their own, they are complementary pieces of the same underlying portfolio. When you put them together you’re essentially buying a portfolio of bank stocks – just in two different wrappers that add unnecessary layers of complexity and fees. Canadian Banc Corp.’s management expense ratio of 1.35 per cent is more than double ZEB’s MER of 0.62 per cent.
“Your reader was given really stupid advice by the adviser, because when you own the class A shares and preferred shares in equal proportions, all you own is a fund with a lot of bells and whistles that owns bank stocks,” Mr. Hymas said. “You can do that a whole lot easier by buying an ETF that owns bank stocks. And it’s much cheaper.”
E-mail your questions to email@example.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
Special to The Globe and Mail
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The best investment every digital brand can make during the COVID-19 pandemic – TechCrunch
Intuitively, stores that sell online should be making a killing during the COVID-19 pandemic. After all, everyone is stuck at home — and understandably more willing to shop online instead of at a traditional retailer to avoid putting themselves and others at medical risk. But the truth is, most smaller online stores have seen better days.
The primary challenge is that smaller shops often don’t have the logistics networks that companies like Amazon do. Consequently, they’re seeing substantially delayed delivery timelines, especially if they ship internationally. Customers obviously aren’t thrilled about that reality. And in many cases, they’re requesting refunds at a staggering rate.
I saw this play out firsthand in April. At that point, my stores were down 20% or in some cases even 30% in revenue. Needless to say, my team was freaking out. But there’s one thing we did that helped us increase our revenue over 200% since the pandemic, decrease refund requests and even strengthen our existing customer relationships.
We implemented a 24-hour live chat in all of our stores. Here’s why it worked for us and why every digital brand should be doing it too.
Avoid the common ‘unreachability’ frustration
When I started my first online store in 2006, challenges that bogged my team down often meant that my team’s first priority became resolving those challenges so that we could serve our customers faster. But admittedly, when these challenges came up, it became more difficult to balance communicating with our customers and resolving the issues that prevented us from fulfilling their orders quickly.
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