Invest Like Warren Buffett

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Invest Like Warren Buffett

Greetings Friends,

Warren Buffett is one of the greatest investors of all time. After more than 60 years as a business and investment manager, Warren Buffett’s net worth has sky rocketed to $62 billion, making him the 2nd richest man in the world. Over the course of Warren Buffett’s distinguished career, he has sprinkled the market with golden nuggets sharing his best investment secrets. Here are a few of Buffett’s best.

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”

“When we own portions of outstanding businesses with outstanding management, our favorite holding period is forever.”

But here’s my favorite Buffett quote:

“Be greedy when other are fearful and fearful when other are greedy.”

This is a great quote for what a lot of investors are struggling with right now. I read hundreds of articles about the market and investing every week. I talk to at least 50 investors every month. And almost 6 years after the financial crisis of 2008, there is still wide spread terror on the Street that the market is going to crash again.

It’s easily the most written about topic hitting the daily headlines and easily the most common concern I hear from my clients.That’s the primary reason why I have been bullish on the market for the last three years, why I am still bullish today and why the market just finished off another great quarter and is on pace for another great year.This market is full of fear.

I see little greed if any coming from any corner of the market. Sentiment is nothing like the tech bubble from 2000 when mail men were throwing around stock tips or housing in 2005 and 2006 when every 26-year old in Chicago was eager to slap down 350K for a 2 bedroom condo in Lincoln Park.

The lack of greed in this market is a great platform for stocks to rally. Which is exactly what continues to happen.The S&P 500 just logged an impressive 6% gain in the second quarter, its best 2nd quarter performance in 5 years, with the index now up 7% on the year. Take a look below — the blue line on top is the S&P 500 (warren buffett owns SPY) price and the orange line is the percent return.

warren buffett
Warren Buffet has a big stake in SPY.
The S&P 500’s strong performance has been driven by a few key sectors.

Energy stocks have been raging in 2014 — the #2 (behind utilities up 18%) performing sector in the S&P 500 with a 15% return this year. Energy’s strong performance ties in perfectly with Buffet’s advice about fear and greed.

2011 and 2012 were dark times for energy investors. With natural gas prices crashing to an all-time low and China slowing during that period, energy stocks were pounded. Some stocks in the sector were down 50%. But that was the time to be buying and buying big. Just like Buffett.

Because the long-term trend in energy is pretty obvious. Let me ask a simple question on that note: In 10 years, do you think oil and energy prices will be higher or lower? Exactly. I don’t see any reason for energy prices to fall — demand keeps climbing every year while production growth remains constrained. Those are both bullish factors for energy stocks.

After a pretty tough 2-year bear market, energy stocks began reversing in late 2012 and have since surged into a new all-time high. Take a look at the energy sector ETF XLE below and how energy stocks fell in 2011 and 2012 before rallying big in 2013 and 2014.

warren buffett
Warren Buffett was buying energy steaks ahead of the breakout.

Some of the top performers were Energy Select Sector SPDR (NYSE: XLE), currently trading at an all-time high, Conoco Phillips (NYSE: COP), just hit an all-time high and Baker Hughes (NYSE: BHI), less than 5% away from its all-time high.

Closely behind energy is healthcare, up 13% on the year, the 3rd best performing sector. Top performers have been ETF Health Care Select Sector (NYSE: XLV), up 13% on the year, cancer drug maker Biogen (Nasdaq: BIIB), up 19% this year hip and knee replacement maker Stryker (NYSE: SYK), up 15% this year.

Clocking in at 4th place is the Technology sector, up 9% on the year. Top performers were the Nasdaq 100 (QQQ), up 10% this year, Apple, Inc (AAPL), up 18% after a 7-for-1 split and Nuance (NUAN), up 25% this year.

So as you can see, Q2 was a great quarter. Investors have something to feel good about.

Looking forward, I expect that trend to continue. Here’s why.

  • Earnings are still great, with the S&P 500 on pace to set new record earnings in 2014.
  • The S&P 500 valuation still looks quite reasonable.
  • The global economy is still on track to expand 3.3% in 2014.

And probably most importantly, if the economy or market stalls, I fully expect central banks across the world to step in big time and juice the market with liquidity. Buffett has also stated he believes central banks will go out of there way to support the economy and market.

I am in the process of getting all my clients portfolio’s loaded into the new portfolio management system, Morningstar Office. When that is done, I will begin sending out Q2 and annual performance reports. And then moving forward, I will be delivering great performance reports every quarter. I’m really excited to share a better reporting and performance tool with my clients.

In the meantime, don’t hesitate to contact me with questions or ideas.

Other than that, I really enjoy writing these updates and I want to thank all my clients for their business. I’m happy to have an opportunity to help my clients access honest, reliable and unbiased investment advice and help them achieve their financial goals.

Happy 4th of July weekend, have a great week.

Your Investment Partner,

Mike

This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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