Wealth Accumulated

By D J Thomas, a large-cap stock market value investor and financial writer

Berkshire Hathaway

3 new purchases for the portfolio

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I have positions in stocks mentioned in this article.

On this Monday 15th May 2023, three new purchases for the Wealth Accumulated portfolio have landed.

At the same time, President Biden is still trying to negotiate with congressional Republicans a deal to avoid the United States government from defaulting on its debt.

Such a scenario was recently described as ‘potentially catastrophic’ by Jamie Dimon, CEO of JPMorgan Chase.

The US Treasury Secretary and former Federal Reserve chair also chimed in:

The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable

Janet Yellen

The negotiations and potential default are not so important, for the same reasons that Yellen espouses.

What is important is that the portfolio is now fully invested, save a few pennies for sundry expenses.

Why I had to act now to invest 100% into equities

Nearly 100%.

Besides, the window of value is closing.

It was wide open in the fourth quarter of 2022, a year in which equities did not do so well:

Even though much of the year has passed, there’s still a small window of opportunity to get in at reasonable prices.

Today’s additions are:

  • Alphabet
  • Berkshire Hathaway
  • Vanguard’s US Equity Index

Alphabet because I believe they will win the AI race.

Berkshire because it’s Berkshire.

The S&P 500 to protect me from my own hubris.

The most interesting purchase is Alphabet because its earnings skyrocketed due to the pandemic and lockdowns. They have fallen back a little since but not so much to worry about.

I’m not sure that a foldable smartphone will bring in the much-needed boost to earnings, but its continued search dominance – over 90% of the internet – combined with AI features said to be integrated into search results should cement its leadership status.

Welcome to my tech-heavy, US large-cap portfolio.

The Woodstock for capitalists: Warren Buffett and Charlie Munger speak out

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Jimi Hendrix woodstock

Here’s some of what Warren Buffett and Charlie Munger had to say at the annual Berkshire Hathaway meeting that caught my eye this past weekend.

Forward earnings

The majority of our businesses will report lower earnings this year than last year

Warren Buffett

This one’s pretty straightforward and speaks to the earnings recession that has been predicted for some time.

The fact that a massive and massively diversified conglomerate like Berkshire Hathaway will suffer lower earnings for the foreseeable future means that the rest of the US economy will suffer the same fate.

If you’re investing in 2023 like I am, be careful how you go about it.

Diversification

One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks … That is an insane idea

Charlie Munger

Charlie’s straight talking is what I’m most impressed with. He really does not give a cr*p if he insults you or not, but at least you get the truth.

For me, this quote speaks to the choices you have as an investor:

  • Buy a low-cost S&P 500 index tracker, or
  • Invest in a portfolio of 10-15 common stocks that are conservatively financed and represent an adequate margin of safety at purchase.

Investment opportunities

What gives you opportunities is other people doing dumb things

Warren Buffett

Recent examples include Kanye West’s antisemetic ranting (he’s a special kind of pleb) leading to a collapse in the Adidas share price, government-enforced worldwide lockdowns leading to a collapse in the price of oil, and Mark Zuckerberg basing the future of Meta on an unproven technology which also drove a collapse in its share price.

See a pattern here?

Other people.

Dumb things.

The best publicly listed business in the world

It (Apple) just happens to be a better business than any we own

Warren Buffett

I own some Apple and so does a sizeable chunk of the investing public, either through their pensions or if they simply track the S&P 500, such is its size.

There’s no doubt that right now, at this time, Apple is the most recognisable brand in the world and happens to manufacture the world’s most iconic item – the iPhone.

Apple’s recent foray into banking in collaboration with Goldman Sachs is a great example of how a business with a crocodile-infested moat can take advantage of its dominance by entering into new markets with ease. AAPL is a keeper.

QE is over. Hello QT

During the last six months or so, the incredible period for the US economy has been coming to an end

Warren Buffett

Buffett was referring to the massive amounts of government spending and quantitative easing that ensued as a result of the coronavirus pandemic. Which lead to some dumb things.

Such as a lot of Berkshire’s businesses overspending.

Buffett noted:

Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren’t in the same frame of mind as earlier. Now we will start having sales when we didn’t need to have sales before.

More sales to get rid of stock means lower earnings going forward until that inventory has been worked through.

All whilst rates continue going higher.

Conclusion

The thing I’ve learned through multiple market and economic cycles is that people will ALWAYS do dumb things which leads to some excellent investment opportunities.

In the past, I’ve been reluctant to take them either through fear or through trying to catch the bottom.

Developing a behavioural finance practice has made a huge improvement in my ability to execute on an investment.

Warren Buffett and Charlie Munger, didn’t talk much about behavioural finance and a calibrated mindset, but they sure lead the way when it comes to knowing how to find investment opportunities, managing a portfolio, and the best types of businesses to own.