Investment
Warren Buffett's 'secret sauce' for investing success: Be 'business pickers' not 'stock pickers' – CNBC
Berkshire Hathaway founder Warren Buffett — one of the most successful investors in the world — says he and vice chairman Charlie Munger are not “stock pickers; we are business pickers.”
In the company’s annual shareholder letter published over the weekend, Buffett explained that the “secret sauce” of their investing success is to make “investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers.”
This approach is known as value investing, where the goal is to hang on to a top-performing stock rather than trade stocks based on short-term price fluctuations, otherwise known as active investing.
Of course, picking winners isn’t easy. But Munger has previously outlined four rules that the two Berkshire Hathaway executives follow when choosing whether to invest in a business.
Aside from Buffett’s No. 1 rule, “don’t lose money,” here are four questions that Munger and Buffett ask when deciding whether or not to invest in a business.
1. Do you understand the business?
Aside from knowing how a business operates and what it offers to consumers, you also want an idea of where a company is going to be in 10 years, if not for decades, says Buffett. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” he wrote in his 1996 letter to shareholders.
Berkshire Hathaway famously missed out on tech companies Google and Amazon in the early 2000s, because Buffett wasn’t sure he understood the businesses in terms of their long-term profitability. This made it harder to determine the value of their stocks.
While Berkshire may have passed on Google and Amazon, other investments in blue-chip companies like American Express and Coca-Cola have paid off over time.
This cautious approach might mean missing out on more speculative opportunities, but Buffett has said that he and Munger “miss a lot of things, and we’ll keep doing it.”
2. Does the business have a durable competitive advantage?
Buffett has said that the “most important” factor in picking a successful business investment is the company’s competitive advantage, which he likens to a “moat” surrounding an “economic castle.”
The more secure the competitive advantage, the more likely the company will prosper over decades.
A competitive advantage could be a powerful brand that people are always willing to pay for, like Coca-Cola, or it could be a unique business model, like selling insurance directly to the consumer rather than through insurance brokerages, as is the case with Geico.
3. Does the business’ management have integrity and talent?
Buffett has said that he looks for three things in a manager or leader: intelligence, initiative and integrity. But integrity matters most of all, “because if you’re going to get someone without integrity, you want them lazy and dumb,” he said in a 1998 speech.
“We do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business,” Buffett wrote in a 1989 shareholder letter. “We’ve never succeeded in making a good deal with a bad person.”
With integrity comes trust. That means Buffett and Munger don’t have to spend much time micromanaging every decision a leader makes.
“The important thing we do with managers, generally, is to find the .400 hitters and then not tell them how to swing,” said Buffett at the 1994 Berkshire annual meeting.
4. Does the price make sense?
As passive investors, Buffett and Munger seek out companies that seem to be trading for less than their intrinsic value.
While there’s no universal measure of value, companies with long-lasting earning potential tend to have consistent earnings, good cash flow and a low amount of debt. When a stock price seems low compared to the company’s value, that’s an opportunity to buy.
But that doesn’t mean that Buffett and Munger seek out the best bargains based on the stock price alone. Simply getting a fair price on a company’s stock can be an effective strategy, too. You’re investing in the business long-term, not just the stock price at the time of purchase.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” wrote Buffett in his 1989 annual shareholder letter. “When buying companies or common stocks, we look for first-class businesses accompanied by first-class management.”
Get CNBC’s free Warren Buffett Guide to Investing, which distills the billionaire’s No. 1 best piece of advice for regular investors, do’s and don’ts, and three key investing principles into a clear and simple guidebook.
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Investment
Budget 2023 Includes Some Investment but Must Fully Address Urban Indigenous Realities in the Near Future – Financial Post
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OTTAWA, March 28, 2023 (GLOBE NEWSWIRE) — The National Association of Friendship Centres (NAFC) receives this 2023 federal budget with measured acknowledgement and urges future engagement. While the NAFC believes that Friendship Centres and urban Indigenous people will benefit from the investments in urban, rural, and northern Indigenous housing, including $4 billion over 7 years, starting in 2024-2025, to implement a co-developed Urban, Rural, and Northern Indigenous Housing Strategy, there are still gaps to be filled when addressing the realities of urban Indigenous communities.
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“We welcome the investments in urban Indigenous housing, but none of the other NAFC’s pre-budget submissions were announced,” said Kelly Benning, NAFC President. “The renewal of the UPIP program and the ongoing investments for Friendship Centres are crucial in order to help us support our communities and help the federal government meet its stated Reconciliation objectives. We fear that urban Indigenous peoples are being asked to wait once again.”
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Friendship Centres have a long and demonstrated history of effectively supporting the communities they serve. With comprehensive and supportive funding, NAFC member Friendship Centres will be able to continue to offer essential Indigenous-led programs and services. Investing in a well-resourced Friendship Centre Program contributes to meaningful economic growth and development for Friendship Centres and PTAs that directly builds up urban Indigenous people.
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“We have appreciated the opportunity to work collaboratively with this Government on a wide range of issues, and we have demonstrated our ability to be effective,” said Jocelyn Formsma, NAFC CEO. “It will be crucial for the federal government to engage with us to fully bridge the gap that urban Indigenous communities face when trying to access critical supports. We are confident that this is the ultimate goal for all.”
In their pre-budget submission, the NAFC requested that the Government of Canada ahead of the budget to (1) re-establish ongoing Friendship Centre funding at a minimum of $60 million per year, (2) invest in urban Indigenous children and youth by re-establishing a national Indigenous youth program and Indigenous children’s strategy at a minimum of $23 million per year, (3) invest in urban Indigenous infrastructure, including for-Indigenous-by-Indigenous housing and homelessness response offered by Friendship Centres through a minimum of $180 million per year, and (4) support urban Indigenous employment and training, including upskilling and reskilling, through $16 million per year to employment and training initiatives provided through FCs, develop, and implement new initiatives, and reduce barriers to employment for urban Indigenous people.
The National Association of Friendship Centres is a network of over 100 Friendship Centres and Provincial/Territorial Associations, which make up part of the Friendship Centre Movement–Canada’s most significant national network of self-determined Indigenous owned and operated civil society community hubs offering programs, services and supports to urban Indigenous people.
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Cryptocurrency, a decentralized digital or virtual currency protected by cryptography, is taking the world by storm. Since Bitcoin’s debut in 2009, its popularity has been steadily increasing – and now, with no sign of slowing down! In 2023 there will be several exciting cryptocurrency trends to keep an eye on.
Crypto markets are maturing at a rapid rate. With the adoption of digital crypto assets by governments and institutional investors on the rise, 2023 looks to be an exciting year for crypto enthusiasts! We’ll explore developments in decentralized finance, key regulatory moves that are helping shape this expanding domain, as well as how more countries continue to adopt their forms of digital currency.
Cryptocurrency in the DeFi Sector
In recent years, the cryptocurrency industry has seen explosive growth as it evolves at a rapid pace. Cryptocurrencies are virtual assets that use cryptography to protect their transactions and regulate the production of new currencies. These digital coins do not succumb to any centralized power or government body since they are fully decentralized in nature.
Cryptocurrency has experienced a surge of growth in the DeFi crypto sector, and this trend is predicted to blossom further in 2023. The power behind decentralized finance lies within blockchain technology. It allows for financial services to be delivered without any third-party intermediation. This essentially cuts out banks or other institutions from being involved, which offers people greater accessibility and control over their finances!
As cryptocurrency continues to grow and evolve, 2023 is set to be a groundbreaking year for the industry. Thanks in part to advancements making DeFi applications more user-friendly, we can expect an abundance of new financial products and services offered by decentralized crypto exchange (DEX), lending platforms, stablecoins, and much more! What’s also exciting is the increasing number of regulatory frameworks being developed worldwide – indicating that governments are beginning their journey towards embracing cryptocurrencies while ensuring they remain safe from misuse. All eyes will surely be on what further developments emerge this coming year!
Crypto Regulations Increased
Recently, the European Union and the United States have made moves to bring cryptocurrencies under closer regulatory oversight. The EU has proposed a framework designed to combat money laundering and terrorism activities while the SEC is focused on cracking down by way of Initial Coin Offerings (ICOs) as well as other measures. These steps are aimed at creating an environment where investors can feel secure in digital asset investments both locally and internationally.
Increased regulation of cryptocurrency has been met with mixed reactions in the industry, but it is an important step for greater legitimacy and stability. Not only does this assure existing investors, but it also encourages institutional investment that would otherwise remain hesitant due to a lack of regulatory clarity. With better oversight over the crypto market comes stronger confidence in its future – both from individual traders and major financial organizations alike.
As digital currencies become more and more mainstream, governments across the world are taking note. China has been leading this charge with its innovative Digital Yuan – a revolutionary financial toolset to challenge traditional banking systems as we know them. Currently, in test-mode, it’s expected that the Digital Yuan will be fully rolled out by 2023 and could potentially have an immense impact on global finance!
In 2023, the world of digital currencies is expected to undergo a sweeping transformation with exciting innovations. Governments around the globe will continue to explore ways in which digital currency can revolutionize financial accessibility while simultaneously reducing costs typically associated with traditional payment systems.
Crypto Trends – The FTX Collapse
The crypto industry has been dealt a disastrous blow with the collapse of one of its largest exchanges, FTX. Its repercussions have sent shockwaves throughout the market and shaken investor confidence in digital assets to its core. With overall market capitalization on a downward trajectory and liquidity issues afflicting many firms, 2023 promises only further turmoil as regulatory clarity is still lacking. This could cause difficulties for DeFi protocols too while potentially hampering NFTs’ growth opportunities this year – there’s no doubt that cryptocurrencies are facing an uphill battle ahead!
Meme Cryptocurrencies
Dogecoin may have been born out of an Internet joke, but 2021 proved it to be a serious contender within the cryptocurrency space. Influencers like Elon Musk and Mark Cuban along with Naomi Osaka’s co-signs aided its rise in popularity this year. As crypto continues evolving on the verge of mass adoption, we can expect some seismic changes happening across all financial markets around the world – making for one exciting era indeed!
Crypto Betting on the Rise
In today’s rapidly changing digital landscape, crypto betting has become the latest trend. As more and more people seek out quicker ways to get their bets in on sports events, politics, or entertainment news – cryptocurrency has surged as a preferred option for quick transactions with the ease of accessibility. 2023 saw an unprecedented increase in demand across all areas related to crypto gambling due largely to advancements within technology which enabled these assets as payment methods that are now accepted worldwide by many industries. Betting is no longer what it used to be: its evolution reflects how far we’ve come since then! Therefore, nothing prevents you from betting on your favorite sport or playing online roulette with real money using any cryptocurrency.
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What are we looking for?
Top-rated mutual funds with top-rated investment processes.
The screen
When investors look at the performance of mutual funds, they are likely looking for something simple – are those performance numbers positive or negative? Considering why those numbers are positive or negative is also important. Why a fund performs a certain way can be the direct result of its investment philosophy and process. An understanding of these components can help investors better gauge if performance results are expected given the goal and method applied. This can be particularly helpful during periods of volatility, such as the one we have experienced since the collapse of Silicon Valley Bank earlier this month. A strong investment process is well-defined and consistently executed, and generally able to withstand short-term market shocks and reward investors over the long term.
A fund’s investment process can be nuanced. To help guide investors, Morningstar’s manager research team assigns ratings to Canadian funds and ETFs that include an explicit component focused on understanding their investment philosophy and process. We refer to this component as the “Process” pillar and rate each asset manager as either Low, Below Average, Average, Above Average or High, depending on the efficacy of their practices. To highlight a few great mutual funds available to Canadians with top-rated investment processes, I used Morningstar Direct to screen more than 3,400 Canadian-domiciled mutual funds and ETFs to find a selection of options to consider. The criteria include:
- A Morningstar Quantitative or Analyst Process Pillar rating of High, indicating the fund has a clearly defined investment process and performance objective that is repeatable and implemented effectively.
- A Morningstar star rating of five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds, etc., after receiving the rating.
- A top quintile category rank month-to-date indicating the funds selected have outperformed their peers since March 1, 2023.
*Data as of March 23, 2023
What we found
The list above highlights funds from 13 different mutual fund categories (as defined by the Canadian Investment Fund Standards Committee) from six different asset managers, indicating strong processes are not confined to a specific asset class or investment style. Although not explicitly screened for, each of these funds also earned a Bronze, Silver or Gold Morningstar Analyst or Quantitative Rating indicating a forward-looking view of the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over a full market cycle. Every fund on the list has delivered, with all but two ranking in the top decile of their respective categories over the past five years.
Note that the management expense ratios listed here are reflective of the f-share class. In the table, f-class (also known as fee-based share classes) shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.
This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.
Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.
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