Imagine you’d invested $1,000 in the S&P 500 back in January 1965. Today you’d be sitting on a nest egg of more than $190,000.
Now imagine you were a beginning investor who entrusted $1,000 with Warren Buffett when he acquired Berkshire Hathaway in 1965. By investing in stocks the Buffett way, your $1,000 would now be worth $27 million.
At 90, Buffett is the seventh-richest person on the planet, with a net worth over $80 billion.
Want to invest like Buffett? Here are five investments to avoid.
5 Investments Warren Buffett Doesn’t Like
A lot of what we know about Berkshire Hathaway’s holdings comes from its 13-F filings with the Securities and Exchange Commission. When these quarterly reports are released, you hear a lot of hype about the latest “Buffett stocks.”
But sometimes Berkshire Hathaway’s investments seem not especially Buffett-like. Case in point: Berkshire Hathaway’s recently $570 million stake in data cloud company Snowflake’s IPO. Buffett probably isn’t the one who chose Snowflake.
He’s reportedly given his second-in-commands Todd Combs and Ted Weschler freedom to make investment decisions on behalf of Berkshire Hathaway. Snowflake is widely believed to be a Combs or Weschler pick.
Here are five investments that Buffett openly dislikes, according to the Oracle of Omaha himself, rather than SEC records.
He’s called bitcoin “rat poison, squared.” He’s joked that it’s only useful in that it reduces the demand for suitcases — a jab at its frequent use to transfer funds for illicit purposes.
The reason Buffett hates bitcoin and other cryptocurrency: He thinks it’s worthless. He’s compared it to checks: You can use a check to transmit money, but does that mean checks themselves are worth lots of money?
Buffett sees bitcoin’s value as based solely on speculation. “You can’t do anything with it except sell it to somebody else,” he told CNBC. “Then that person’s got the problem.”
Buffett has repeatedly vowed that he’ll never own cryptocurrency. In fact, after Justin Sun, CEO of cryptocurrency Tron, gifted him a Samsung phone containing bitcoin and Tron, Buffett reportedly donated it to the GLIDE Foundation in San Francisco.
Buffett has a longstanding bearish take on gold. He’s not a fan because he says the precious metal doesn’t produce income and its usefulness is limited.
“Owners are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it even more avidly in the future,” Buffett wrote in his 2011 letter to shareholders.
So last month’s news that Berkshire Hathaway had invested in Barrick Gold Corp. (GOLD) sent stock watchers squawking. Did Buffett finally change his mind about investing in gold?
Not exactly. Berkshire Hathaway didn’t actually buy physical gold. It bought stock in the second-largest gold mining company in the world — a company that produces gold, plus income for shareholders by paying dividends.
3. Tech Startups
In the tech sector, Buffett sticks mostly with behemoths like Apple, Amazon and, previously, IBM. He believes tech companies often lack a competitive advantage. Plus, many fail to live up to Buffett’s oft-quoted advice: “Never invest in a business you cannot understand.”
And IPOs? He told investors in 2016 at Berkshire Hathaway’s shareholders meeting he ignores them. “People win lotteries every day but there’s no reason to let that affect [your investing strategy] at all,” he said.
Buffett’s aversion to most tech stocks and IPOs give credence to the theory that Snowflake wasn’t his selection.
4. Treasury Bonds
Buffett described investing in long-term Treasury bonds as “terrible investments” at the 2018 Berkshire Hathaway shareholders meeting.
The reason: Say you buy a 30-year Treasury bond that pays you 3% interest per year. The Federal Reserve aims to keep inflation around 2%. After taxes, you might be left with 0.5% returns when you adjust for inflation.
What Buffett considered a terrible investment in 2018 has only gotten more terrible. With interest rates historically low, those Treasurys that yielded 3% two years ago are now hovering around 1.4%.
5. Penny Stocks
Buffett isn’t a fan of buying cheap stocks just because they’re cheap. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he’s said.
So it’s safe to say that penny stocks are the ultimate anti-Buffett investment. Shares often cost $1 or less, but there’s a good reason. The issuing company often has no proven track record, or it’s seriously troubled.
How Buffett Thinks Most of Us Should Invest
Buffett doesn’t think most people who aren’t named Warren Buffett should pick their own stocks. He says most people are better off investing in low-cost S&P 500 index funds. The easiest, cheapest way to do so is through exchange-traded funds (ETFs).
But if you’re determined to handpick a portfolio Buffett would approve of, think long term. Buy stock in companies you’d want to own forever, rather than investing based on speculation or the latest fad.
Coca-Cola is a yes for Buffett. Cryptocurrency, not so much.
Robin Hartill is a certified financial planner and a senior editor at Codetic. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]