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Warren Buffett's Annual Letter: Key Insights for Investors

Billionaire investor and owner of Berkshire Hathaway — Warren Buffett — released his annual letter to shareholders on Saturday, Feb 24. Buffett emphasizes his lifelong commitment to stocks, dating back to his first investment in 1942. Despite market fluctuations, he credits American investment markets’ stability and growth for his success, advising investors to remain steadfast in equities.

We have discussed a few points from that letter that could serve as investing tips for learners. These tips currently put stocks like Microsoft MSFT, Amazon.com AMZN, Surgery Partners SGRY and Nvidia NVDA in winning positions.

Focus on Enduring Businesses

Berkshire's strategy revolves around owning businesses with enduring and fundamental economics. He warns against the illusion of predicting winners and losers, noting that even experts may commit mistakes in forecasting a stock's fate. The key is to identify businesses with enduring competitive advantages.

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Here we’d like to add that Buffett prefers “wide moat” stocks. The term was popularized by Buffett as he seeks "economic castles protected by unbreachable moats.” In the world of investing, "moat stocks" refer to companies that possess strong competitive advantages.

An example of a wide moat stock is Zacks Rank #2 (Buy) Microsoft. It is one of the largest broad-based technology providers in the world. The company dominates the PC software market with more than 73% of the market share for desktop operating systems. MSFT has been taking a pioneering initiative in developing and bolstering the global generative Artificial Intelligence move.

Market Panics to Happen Occasionally

Buffett acknowledges the unpredictability of market panics, citing historical instances like 1914, 2001 and 2008. He warns against overestimating the stability of modern markets. Zacks Rank #1 (Strong Buy) Amazon.com is another wide-moat stock set to weather such uncertainties.

Amazon offers a mix of business — both retail and technology. While its retail business stood out, its cloud business, too, is flying high. Its cloud business AWS is the top cloud provider by market share, providing cloud computing power and storage to millions of businesses. Since its IPO in 1997, AMZN shares are up more than 184,671% versus a 493% rise in the S&P 500 (as of Feb 20, 2024), per investors.com.

Expect Moderate Gains

Buffett advised shareholders to expect Berkshire's performance to be slightly above average with reduced risk. He stressed the importance of managing expectations realistically. In this context, investors looking for consistent but moderate gains may try investing in steady sectors like healthcare.

Zacks Rank #2 Surgery Partners is a healthcare services company. The company's outpatient delivery model focused on providing solutions for surgical and related ancillary care in support of its patients and physicians. The company belongs to a top-ranked Zacks sector (top 25%) and industry (top 32%). SGRY produced an average four-quarter earnings surprise of 316.07%.

Charlie Munger's Liking for Wonderful Business at Fair Prices

Buffett credits Charlie Munger's advice for steering Berkshire's success from a textile mill to a conglomerate. Munger advised Buffett to focus on acquiring wonderful businesses at fair prices rather than buying fair businesses at wonderful prices, a policy Buffett has followed for long.

In this context, we can consider the red-hot artificial intelligence (AI) business. Most tech giants are coming up with expansion plans on AI and intend to take the growth momentum forward. But then, after about a one-year rally, AI stocks are not cheap. You can follow Munger by investing in AI stock Nvidia. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nvidiais poised to become the first semiconductor company to reach a $2 trillion valuation, marking an important milestone in its rise as the primary beneficiary of the surge in artificial intelligence-related stocks over the past year. While NVDA lacks on value, the stock has an upbeat Momentum and Growth Score of B.

About Oil Investments

Occidental Petroleum OXY is now Berkshire's seventh largest holding. At year-end 2023, Berkshire owned 27.8% of Occidental Petroleum’s common stock. Despite uncertainties surrounding carbon-capture initiatives, Buffett sees value in Occidental's strategic positioning within the U.S. oil and gas sector. However, Buffett clarifies that Berkshire has no intentions of purchasing or managing Occidental.

Having said this, we would like to note that OXY has a Zaks Rank #4 (Sell). Investors thus can focus on other better-ranked energy stocks like Equitrans Midstream ETRN. The Zacks Rank #3 (Hold) company owns, operates, acquires and develops midstream assets primarily in the Appalachian Basin. ETRN yields 5.73% annually. The company’s last four-quarter average EPS surprise was 55.61%.

(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Surgery Partners, Inc. (SGRY) : Free Stock Analysis Report

Equitrans Midstream Corporation (ETRN) : Free Stock Analysis Report

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