Warren Buffett returns with new lessons for investors

The Oracle of Omaha has bought $15 billion in stocks since US President Donald Trump’s surprise election.

Warren Buffett has seen the opportunity presented by Trump’s tax-cutting, growth-driven regime.

Warren Buffet is the world’s ­greatest living investor and a great source to turn to when the investment markets heave with huge ­unknowns.

Just now, in the shadow of ­Donald Trump, we need guidance more than ever and thankfully he is offering new insights to anyone who will listen.

In fact, the doyen of private ­investors has made one of the ­biggest statements he has made in more than a decade with a huge ­increase in his stockmarket investments. Buffett told a news network this week his Berkshire Hathaway group had invested $US12 billion ($15.7bn) in the sharemarket since Trump’s election as US President in early November.

Buffett is in many way the “anti-Trump”: an American ­capitalist winner — but one who puts humility and humanity first. He is very uncomfortable with Trump’s slash-and-burn style and has ­publicly distanced himself from Trump’s more reactionary ­policies.

But the essential point is that as an investor he has seen the opportunity presented by Trump’s tax-cutting, growth-driven regime and invested heavily in these changed conditions.

Indeed, the last time we saw a move on this scale was back in the depths of the Great Recession in late 2008 (the market would ­bottom in 2009) when Buffett laid out an $8bn package in value ­investments, including a refinance package for Goldman Sachs. And that proved to be a smart move with Goldman Sachs now back as arguably the most powerful ­investment bank in the world.

Buffett, is of course, what is known as a “value investor”. You might think everyone is at heart a value investor; after all, who is looking to pay over the odds?

But the term implies some core disciplines, such as slow and careful accumulation of profits, strict adherence to intrinsic valuation models and a view of shares not as units for short-term betting but rather a way to acquire “parts of companies”.

However, the outstanding ­feature of value investors is their willingness to “be fearful when other are greedy and greedy when they are fearful” — Buffett’s ­contrarian investment principle.

You have to read Buffet’s latest move back into the market in ­recent months as a textbook ­contrarian move — it’s clear many professional fund managers were paralysed by indecision in the early weeks of the Trump administration and missed the worldwide lift in sharemarkets.

“The Sage of Omaha” has many disciples in Australia — some of the best-known fund managers would include regular Wealth columnist Roger Montgomery and firms such as Clime and the listed investment companies AFIC and Argo.

In fact, there is a fund listed on the ASX for almost a decade, ­Global Masters Fund, which does little else except buy shares in Berkshire Hathaway. Associated with ex-Hyperion fund manager Manny Pohl, Global Masters has about 70 per cent of its total assets in Berkshire Hathaway stock.

Though Buffett’s record in the last decade has not been as good as his early years, the overall ­performance of Berkshire Hathaway is still extraordinary. Since 1965 total returns at Berkshire Hathaway have been 20.8 per cent a year against 9.7 per cent on the S&P 500. Last year Berkshire ­Hathaway did 23 per cent and the S&P 500 did 9.8 per cent.

What the Sage says

So what does Buffett have to tell us now? Added to this expanding ­library of books (including the ­biography Snowball) is a new ­documentary titled Becoming Warren Buffett, which offers a very easy introduction to whole subject of “Buffetology”.

Among Buffett’s comments on screen are that most investors act “too frequently”. He is a firm ­believer in constantly examining the market while making only very select and occasional moves. He sticks to his guns when he ­believes in a company and its ­management are doing everything right — this is why, no doubt, he remains a big believer in both Coca Cola and IBM.

Buffett is prepared to lose money when the market is ­running hot, such as in 1999 before the tech crash of 2000 (when Berkshire Hathaway under­performed) and he is prepared to look well ahead into the future — also ­included in his last big cash splash back in 2008 were investments in electric cars.

Now in his mid-80s he puts enormous amounts of time into making sure he does not lose money (though he still does on occasion). The most famous investing lesson associated with Buffett is still probably the one about the two investment rules. The first rule is never lose money, the second is ‘Don’t forget the first rule’. He seems more than ever convinced that good investors are not the brightest or most intelligent, but those with the best temperament who can stick with their plans and decisions.

It is also clear these days he still walks the talk. In other words, he takes his careful, conservative and old school parsimony very seriously. On his way to the office every morning (the same one for nearly half a century) he debates over which McDonalds breakfast he will have — the dearest is $US3.17.

The new documentary adds to a mini-industry around interpreting Buffet’s moves. Among the many contributors to the Buffett legend is his former daughter-in-law — still going under the name Mary Buffett who has written seven books about his investing techniques. But, for my money, the best items to read are the freely available shareholder letters he produces for Berkshire Hathaway every year to explain his investment performance.

If you’re sceptical that the ­Buffett story is too good to be true, the documentary also shows a sharp side — when a business manager tried to do him over on a gentlemen’s agreement back in the 1950s, he bought the company and fired the business manager. Buffett still owns the company ... it’s called Berkshire Hathaway.