Warren Buffett: The Advantage You Have Over the Oracle of Omaha

Warren Buffett is unquestionably one of the best investors of all time. Many professional investors fail to consistently beat the market over just a one-decade span. Buffett has managed to massively outperform the market for several decades.

This incredible growth over the years has led many investors to follow the stocks he buys with his company Berkshire Hathaway. This is an understandable strategy and a great way to find some of the top stocks that Buffett is buying.

Sometimes, though, you can’t always follow Buffett, as he has the size and capabilities of finding large privately owned businesses. However, retail investors enjoy an advantage over Warren Buffett that also has to do with the massive size of his company.

Because Berkshire Hathaway is worth over US$550 billion, or more than $700 billion in Canadian dollars, Buffett can’t really buy small-cap stocks. For that matter, he likely won’t even bother to buy mid-cap stocks.

It’s not that he can’t. It’s just not worth it for him. With a massive portfolio that earns billions of dollars a quarter, it’s not worth it for Buffett to buy smaller stocks. This significantly reduces the number of stocks Buffett can consider an investment.

Because of the size constraint that Buffett has when buying businesses, retail investors have a significant advantage over the Oracle of Omaha.

So, although sometimes the stocks he buys are worth an investment too; oftentimes, you can find even better businesses than Warren Buffett is buying. Here are two top Canadian stocks to buy today.

A top Canadian energy stock

One of the top energy stocks in Canada, which has a lot of the qualities the Warren Buffett looks for in a business, is Freehold Royalties (TSX:FRU).

Freehold has been on a strong rally the last few months, yet even at today’s prices, it’s still worth less than $1 billion. This makes the stock much too small for Buffett, leaving the stock cheaper for retail investors.

Freehold is so attractive, because it’s a low-risk way to gain exposure to a highly cyclical energy industry. Not only does the company have exposure to energy production from hundreds of firms, but it also has very little debt.

This makes Freehold an ideal stock for long-term investors looking for a passive-income investment. And because the energy sector is rallying with so much momentum at the moment, Freehold offers considerable capital gains potential, too.

Since the start of the year, it’s already returned investors roughly 50%. So, I would consider buying it soon; it’s only getting more expensive by the day.

Warren Buffett likes natural gas

Another high-quality Canadian stock to consider today is Peyto Exploration and Development (TSX:PEY).

Peyto is one of the lowest-cost producers in Canada. This is a feature that Warren Buffett would surely find attractive. Peyto, however, is worth less than $1 billion, just like Freehold. And just like Freehold, the stock has been rallying considerably as the energy sector rebounds.

Since the start of the year, Peyto has already earned investors a 100% gain, and it has a lot more upside to go.

Warren Buffett is well known to like natural gas stocks, as he has investments in the industry. Unfortunately for him, though, Peyto is just too small a company leaving this incredible stock to retail investors only.

Bottom line

Warren Buffett is one of the best investors of all time, and many of the stocks he buys will be incredible long-term investments. However, retail investors have a significant advantage over the Oracle of Omaha due to the sheer size of his company.

So, although you can find some great stocks in his portfolio, I’d use the advantage you have over him to buy some of the top Canadian stocks you can own.

Looking for more great Canadian stocks to buy? Here are the TOP 10 STOCKS FOR MARCH!

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More reading

  • 17 Top TSX Stock Picks for March 2021
  • 1 Stock With Far More Potential Than Air Canada (TSX:AC) in 2021
  • Buy Alert: 3 Top Canadian Energy Stocks to Buy Now
  • Forget Air Canada: 5 Canadian Stocks to Buy Instead
  • 3 Top Canadian Stocks to Buy Under $20

Fool contributor Daniel Da Costa owns shares of FREEHOLD ROYALTIES LTD. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends FREEHOLD ROYALTIES LTD 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: The Advantage You Have Over the Oracle of Omaha appeared first on The Motley Fool Canada.

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