The month of March brings back some memories. At this time last year, the pandemic led to the worst market crash in over a decade. But the market recovered with equal strength and speed and has now returned to pre-pandemic growth. Many institutional investors call this recovery a stock market bubble induced by overvalued tech stocks. Surprisingly, Warren Buffett was mum about the pandemic in his annual letter to shareholders.
The billion-investor faced a lot of criticism for hoarding cash in one of the most epic market crashes and recovery. What Buffett did last year is rebalance his portfolio in light of the development in the COVID-19 economy. I don’t doubt Buffett’s 70 plus years in the investing world.
His investing style is still traditional (even he thinks so). He said Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) has been offering hamburgers and Coke for 56 years, referring to value stocks with stable cash flows. Last year, he didn’t find many hamburgers. Hence, his biggest investment was in himself. Berkshire repurchased stocks worth US$24.7 billion and made no significant acquisitions. It ended the year with US$138.3 billion cash. Some analysts believe that Buffett is preparing for a major acquisition.
But what I see is that Buffett finds more value in cash. You can’t blame him as the stock market saw the Bitcoin frenzy and the GameStop saga. Even if the stock market doesn’t crash, he is not an investor who will buy social media-hyped stocks unless he sees future earnings potential.
Buffett added that the market is tilting toward “French cuisine and exotic wine,” referring to high-growth, emerging tech stocks that have led the stock market recovery in 2020. He is not a French cuisine person but had some fancy dinners occasionally, with some tech investment.
While Buffett didn’t make any major investments, he rebalanced his portfolio. He exited the loss-making business and put that money in some growth and dividend stocks. Amid the pandemic, he exited all airline stocks and sold several bank stocks, including a complete exit from JPMorgan Chase and Goldman Sachs.
Instead, he used that money to buy four pharma stocks, a little of the gold stock, and a cloud initial public offering Snowflake. Some analysts believe other Berkshire managers made these buying decisions and not Buffett. It could be true. Being the CEO of Berkshire, he might be more involved in bigger purchases of several billion dollars.
Buffett’s investments are in Verizon (US$8.6 billion) and Chevron (US$4.1 billion). Last year, he also acquired natural gas assets from Dominion Energy (US$8 billion). All these are classic hamburger and Coke investments where cash flows are stable. They are the legacy businesses and dividend yield generators.
Now, if you look at the overall change Buffett made in the Berkshire portfolio, you will see a high mix of dividends and a slightly cautious mix of growth stocks. So if you like Buffett investing style, don’t completely neglect the wine and French cuisine. But don’t spend a fortune on them too.
You can mimic Buffett’s investing style by investing in BCE (TSX:BCE)(NYSE:BCE) and the iShares S&P/TSX Capped Information Technology Index ETF.
Like Verizon, BCE is one of Canada’s three largest telecom service providers and enjoys a stable cash flow. The company plans to increase its cash flow by doubling its investment in 5G coverage. The company has a 12-year history of increasing its dividends at an average annual rate of over 5%. The 5G rollout could possibly accelerate this growth. The stock currently has a dividend yield of 6.28%. Pandemic or no pandemic, you will get a 6% return for the long term unless the firm runs into difficulties and cuts dividends.
While the BCE will give you exposure to the broadband infrastructure, the XIT ETF will give you exposure to the internet and cloud services. Your portfolio can grow along with the 5G.
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Snowflake Inc. The Motley Fool recommends Dominion Energy, Inc and Verizon Communications and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).
The post Warren Buffett: How to Rebalance Your Portfolio in March appeared first on The Motley Fool Canada.
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