Buffetted: Why the world’s greatest investor changed his strategy

Warren Buffett’s latest annual letter to shareholders demonstrates once again that the world’s greatest investor marches to his own drummer.

The letter, published Friday, shows that Mr. Buffett’s flagship company,Berkshire Hathaway Inc., continues to hold a highly concentrated portfolio. About 64 per cent of its holdings are in only five stocks.

Mr. Buffett has held a concentrated portfolio throughout his illustrious career, making a mockery of the modern portfolio theory taught in universities around the world, which holds that wide diversification among hundreds of stocks is desirable.

But while Mr. Buffett has always believed in the benefits of holding highly concentrated portfolios, his opinion about what kind of stocks to invest in has evolved over the years. Investors who want to emulate the Oracle of Omaha should ponder the lessons of his career.

Mr. Buffett’s current policy is to buy great companies at reasonable prices. His portfolio is focused on market leaders, such as Coca-Cola, American Express and Wells Fargo, that he has held for years. Once he invests in a great company, he says he wouldn’t care whether the markets were to close for the next three years. He buys and holds as if he were the owner; he never buys and sells as a trader.

Mr. Buffett’s recent deal to buy H.J. Heinz Co. is a perfect fit for his philosophy. In many ways, the ketchup maker is like Coca-Cola. Both have intergenerational customer captivity – an extremely rare thing – forged out of habits built up while consumers are children. For these stocks the best strategy is to buy and hold – you never sell, as their intrinsic value is always one step ahead of the stock price.

Buffett Still Buying Stocks, Sees 'Good Value'

Warren Buffett still sees "good value" in stocks, even as the Dow Jones Industrial Average approaches an all-time high.

On CNBC's Squawk Box, Buffett said Berkshire Hathaway is still buying stocks, even though prices have increased.

"Anything I bought at $80 I don't like as well at $100. But if you're asking me if stocks are cheaper than other forms of investment, in my view the answer is yes. We're buying stocks now. But not because we expect them to go up. We're buying them because we think we're getting good value for them."

He said stocks are not "as cheap as they were four years ago" but "you get more for your money" compared to other investments. He added, "The dumbest investment, in my view, is a long-term government bond."

Buffett revealed that a potential acquisition had been "mentioned" to him and he will be exploring the idea, no deal is imminent. "That's always a low probability. Whether it's a five percent or ten percent, who knows? But I get excited when I hear about possibilities." Asked what sector the company is in, he replied with a laugh that it is "in business."

(Read More: Buffett: How to Get 'Fair Shake' on Wall Street)

Buffett praised Berkshire's new portfolio managers, Todd Combs and Ted Weschler, and announced publicly for the first time that they'll soon be getting an additional $1 billion to work with. He joked they are making his decisions "look bad" by comparison. The new money will increase the size of their portfolios to $6 billion from $5 billion.

Buffett said it's "quite unlikely" he'll hire another portfolio manager, in part because he's so happy with Combs and Weschler. "We hit the jackpot with these two."

Buffett isn't too worried that the automatic government spending cuts known as the sequester will slow down the U.S. economy too much.

"We're continuing to see a slow recovery," he said. "It hasn't taken off, but it hasn't stopped either."

Buffett said that while the sequester will reduce the government's stimulus of the economy by cutting back on the deficit the remaining spending is still providing the economy a lot of "juice." 

"It's not galloping at all, but we are making progress bit by bit. Everybody would love to see it faster. But it's not going into reverse and I do not think the sequester will cause it to go into reverse."

Warren Buffett's Advice: How to Get 'Fair Shake' on Wall Street

During his live appearance on CNBC's "Squawk Box" today, Berkshire Hathaway Chairman Warren Buffett had some valuable advice for individual investors on how to make sure they are getting a "fair shake" on Wall Street.

BECKY QUICK: Do you think, and I ask this because there have been so many scandals that people think about, Libor, and they think about a lot of the deals behind the scenes that have been dragged out. A lot of Main Street investors think they can't get a fair shake on Wall Street. Can they?

WARREN BUFFETT: Well, they pay a lot of expenses in many cases. They don't need to. They should buy a low-cost index fund and they can participate in the growth of America over the next 20 or 30 or 40 years and they'll do fine. But if they're paying high fees to achieve that same result, they're going to get hurt. They should look very carefully at costs. But they should hold a diversified group of really high-class companies, which you can do by buying an index fund. And then they should forget it. They should just pretend the stock market closes for five years and they shouldn't look at prices every day...

The people selling you securities are often selling you things they make a lot of money in. The first question you should ask of anybody selling you securities is, 'How are you getting paid and how much are you getting paid?' The truth is you can own index funds with a very, very low cost and you will end up getting the same performance that you get from people who charge you a lot more.

So, you always want to look at costs. When somebody comes around to you and says, 'I'm going to sell you this wonderful security but there's this big chunk in it for me," you get suspicious.

(Read More: Buffett Still Buying Stocks, Sees 'Good Value')

As they say, when a person with experience meets a person with money, the person with the money gets the experience and the person with the experience gets the money.

(Read More: You Tweet, Buffett Answers)

From cnbc.com

The Extreme Plan One Mother Used To Erase $89,000 Of Debt In Six Months

Six kids means more than multiplying diapers, food, clothing and toys … the dollar signs multiply as well.

Angela Coffman, of Kansas City, Missouri, one of the four subjects on the recent TLC special Extreme Cheapskates, was a stay-at-home mom of six, and in debt to the tune of $89,000.

Through extraordinary dedication, effort and big-time penny-pinching, she managed to pull her family up by its bootstraps and erase all that debt … in just six months!

Today, Coffman works from home, teaching others how to live frugally on her website, Grocery Shrink. We caught up with this reality TV star to talk about how she paid off that debt, and how she budgets to keep it off.

What were you doing to acquire so much debt?
My husband and I were living the American dream. We had several credit cards, but we mostly used one that gave us cash back on our purchases. We would put everything on it—food, clothing, all of our necessities—and then try to pay it back at the end of the month. We borrowed $20,000 to buy a car, we had put $75,000 down on a house that we were using as a rental property and borrowed $1,000 to buy a leather couch. Then my husband Darren, who’s an accountant, lost his job, and we couldn’t pay off the credit card any more.

How did you become motivated to do something about it?
I knew there was a better way to handle our money. My parents paid off our home when I was in the fourth grade, and they never borrowed money again. They really had taught me better. One day, I heard finance expert Dave Ramsey on the radio announcing a contest to win a trip to the Bahamas. You had to be one of the top ten families in the nation who paid off the most debt or saved the most money in a six-month period. About that time Darren got a new job, and I figured, even if we lose the contest but we give it our all, we’ll end up winners. We won—and got to go on the trip.

What did you do during those six months to save money?
We went all out. We spent nothing that we did not have to in order to survive. We ate food that we picked from our yard, we turned off our heat and burned wood in the fireplace instead, we used cloth diapers, cloth napkins, cloth toilet paper—anything that you would usually use paper for. We hand-made gifts, I made clothes for the kids out of leftovers from garage sales that neighbors would give me. So my sons wore denim skirts … but they looked like shorts after I sewed them.

We decided to sell our house and wait for a time when we were financially able to support an investment like that. We sold some cattle that my husband owned, and we sold whatever else we could. We only kept $1,000 for ourselves. That was our only cushion between us and bankruptcy. The rest went to paying off debt.

By the end of the six months, we were completely out of debt. Three months later, we had actually saved $40,000 to put down on a new house.

Buying Necker Island For $180,000 Was The Best Deal Richard Branson Ever Made

Richard Branson, the head of Virgin Group, is one of the most famous and successful entrepreneurs in the world.

His portfolio of assets now include everything from media companies and airlines to telecommunications companies and real estate.

But one of Branson's smartest early purchases was Necker Island, a 74-acre island in the Caribbean that he visited in the late 1970s and quickly fell in love with.

Entrepreneur Luke Murray recently recounted how the deal went down on Virgin's blog.

When Branson visited Necker at age 28, it was owned by Lord Cobham, who was asking $5 million for the uninhabited property. Branson boldly decided to offer $100,000 and was quickly evicted by the insulted landowner.

Over the next few months, Branson slowly increased his offer while looking for the necessary funds, according to Murray. It just so happened that Lord Cobham was in need of short term cash, and he finally accepted an offer of $180,000, more than a 96 percent discount off the asking price.

The purchase did come with some stipulations. The government required any foreigner who purchased the island to build a resort, or the state would reclaim ownership.

It took Branson five years and $10 million to construct his island haven, but it was a worthwhile investment — despite the fact that part of the resort was destroyed in a fire last year.

In addition to the enjoyment that guests have had over the years, Branson estimated in 2006 that the island's value had grown to approximately $60 million, a 33233 percent increase over what he paid for it.

Unsurprisingly, he called it his "best financial move" in an interview with UK website This is Money.

From businessinsider.com