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Buffett's Wisdom: 6 ETF Strategies for Investors

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Billionaire investor and owner of Berkshire Hathaway – Warren Buffett – released his annual letter to shareholders Saturday. We have discussed some points from there (as highlighted by a Mint article) that could serve as investing tips to the learners.

Stay Invested in Equities

Since his first stock purchase in 1942, Warren Buffett has kept a majority of his net worth in U.S.-based equities. Despite market fluctuations, his long-term strategy has paid off handsomely. Buffett said “America has been a terrific country for investors” and emphasized the importance of patience and confidence in the investing process. In this context, the S&P 500 ETF SPY could be a great pick. The fund is up 81% in the past five years.

Focus on Businesses with Enduring Fundamentals

Buffett's strategy at Berkshire is straightforward: invest in businesses with strong and lasting fundamentals. 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.

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. VanEck Morningstar Wide Moat ETF (MOAT - Free Report) too added 84.2% in the past five years.

Occasional Market Disturbances Are Normal

Buffett acknowledged the unpredictability of markets, citing historical instances of market collapses in 1914, 2001 and 2008. He said that “such instant panics won’t happen often – but they will happen”. He cautions investors against complacency, highlighting the likelihood of rapid market downturns caused by technological advancements and global interconnectedness.

Here again, we would suggest you to stay invested in broader market ETFs like SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM - Free Report) , which has returned 77% in the past five years.

Have Moderate Expectations for Returns

While Buffett's Berkshire aims to outperform the broader market with lower risk, Buffett advises against unrealistic expectations. This tempered outlook reflects a focus on steady growth rather than speculative gains. In this context, investors looking for consistent but moderate gains may try investing in steady sectors like healthcare. iShares US Healthcare ETF (IYH - Free Report) has added 57.8% in the past five years

About Oil Investments

Occidental Petroleum is now Berkshire's seventh largest holding in the equity portfolio. At yearend, Berkshire owned 27.8% of Occidental Petroleum’s common shares. Buffett's preference for Occidental Petroleum demonstrates his principle of investing in familiar industries where he sees winning prospects. Despite uncertainties surrounding carbon-capture initiatives, Buffett sees value in Occidental's strategic positioning within the U.S. oil and gas sector.

Those who follow Buffett but do not have strong stomach for risks may tap ETFs like Occidental-heavy ETFs like Texas Capital Texas Oil Index ETF (OILT - Free Report) and First Trust Nasdaq Oil & Gas ETF (FTXN - Free Report) . The ETF approach lessens the company-specific risks.

Learn to Adapt

Charlie Munger's advice to Buffett exemplifies the importance of learning from evolving strategies. Munger's advice to focus on acquiring exceptional businesses rather than bargains reshaped Berkshire's trajectory, illustrating the value of humility and flexibility in investment decisions.

Munger suggested Buffett to “add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices.” Munger said this to Buffett going against the latter’s long-standing liking for value investing.

In this context, we can consider artificial intelligence business, which is currently hot like anything. 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 and ETFs are not cheap. You can follow Munger by investing in AI ETFs like Global X Robotics & Artificial Intelligence ETF (BOTZ - Free Report) . BOTZ is up 30% in the past one year.


 

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