The news that Warren Buffett has made some major purchases in recent days should be make investors prick up their ears. The 89-year-old multi-billionaire proves there’s no age limit to good investing.
I think that by following his recent buys and sells, UK investors can make the best of their own portfolios in these seriously uncertain times.
What did Warren Buffett do?
Warren Buffett made his name by recording near-20% returns annually from 1965 to 2019.
Compounding your gains at 20% a year means doubling your money in less than half a decade. So following Warren Buffett in his market moves makes a huge amount of sense.
According to new regulatory filings, the Berkshire Hathaway chairman has made some significant moves this month.
Sell this
On the selling side, Warren Buffett has slashed his stake in banks. This includes unloading 61% of his holdings in JP Morgan Chase, and selling 26% of his position in Wells Fargo.
Why is this? Bankers are having to put aside extra money to cover what they might lose from people being unable to pay back loans. JP Morgan had to set aside more than $10.5bn of these loan-loss provisions while reporting that its Q2 profits had fallen more than 50% year-on-year.
The same is happening in the UK. Barclays, for example, reported a 91% fall in net profit in the second quarter of the year. Barclays shares have suffered a 40% drop this year alone.
This scenario is very likely to continue throughout the UK recession and pandemic-related economic turmoil.
Lloyds is wallowing at under 30p, a 44% loss since January. And I think the shares can fall much further.
Richard Buxton, head of strategy at Jupiter Asset Management, told the Financial Times: “Given the headwinds, investing in banks is as stupid an activity as investing in oil majors…The economic downturn clearly means a big pick-up in bad debts.”
Buy this?
By contrast, Warren Buffett has been ploughing money into gold miners like never before. As Mark Twain famously wrote: “During a gold rush it is a good time to be in the pick and shovels business.”
With the price of gold breaking all-time highs above £1,550 per ounce, gold miners are finding ever greater demand, higher margins and profits from their precious metal product.
Warren Buffett has been buying up Canada’s Barrick Gold. Its share price, predictably, jumped 12% on the news that the Sage of Omaha was buying-in.
For UK investors, I think there’s strong value to be had from the likes of FTSE 250 gold miner Centamin. Yes, even with a headline P/E ratio of 34.
Why? Well, profit tripled in the first half of 2020 and revenues are up more than 56%. So the company’s earnings are growing faster than the share price.
Centamin also raised its interim dividend by 50%, reflecting its growing profits.
There are also slightly riskier plays in AIM-listed gold stocks like Greatland Gold and Eurasia Mining. I’ve covered them both before because I believe they have some of the best prospects in the world right now.
