Whilst market’s fret about slowing growth (“Ready for a Growth Scare?”) – Warren Buffett sits back with a smile. His company – Berkshire Hathaway – rallied to fresh record high this week after the company reported a record high quarterly profit. Its market value is now over $1.1 Trillion. So how did Buffett build this incredible cash machine? I’ll outline three (basic) reasons… all of which you can emulate.
Valuations
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Nvidia is Cheaper… But Not Cheap
Nvidia’s latest quarterly numbers were very impressive – producing 78% sales growth. They dominate the market for AI chips. A small nitpick could be the three point decline in gross margins (but that’s expected). Let’s not forget – those gross margins are still 73%. No-one else comes close in the semiconductor industry. So why would the stock tank 8.5%? Simple: expectations. The market knew that Nvidia was going to grow at revenue at least 70%+ where gross margins would be north of 70%. But growth is slowing (as they get bigger) and margins are declining (as competition starts to ramp up)
Buffett: “Often, Nothing looks Compelling”
Saturday Feb 22nd was circled on my calendar. It was the day Warren Buffett shared his annual shareholder letter. If you want to become a better long-term investor – it’s worthwhile reading every one of his 59 letters (from 1965). With respect to valuations he offered this: “We are impartial in our choice of equity vehicles, investing in either variety based upon where we can best deploy your (and my family’s) savings. Often, nothing looks compelling; very infrequently we find ourselves ‘knee-deep’ in opportunities.”