How does your age affect your investment decisions?
Does your age affect your investment decisions? Well, yes and no!
If you have enough money to take care of your household expenses for all your life, you may not mind taking a few risks to maximize your wealth. But if you are approaching your retirement with a kitty that may outlive you only by a few years, maybe you won’t take chances.
Now let’s change the question slightly.
Imagine you are investing money in a popular mutual fund or a PMS scheme whose fund manager is aging. How concerned will you be? Do you think it will affect his decision-making in any manner? Well, yes and no!
While he is responsible for managing your money as diligently as he would manage his personal wealth; it’s still not his money. To give it a slightly different shade, what if he turns ultraconservative with age? Don’t you think you would miss some of the best investment opportunities of the future?
After all, as we grow older not only our risk appetite may run down but also our acceptance of new things. We may not resonate with the fast-changing world as we approach the autumn of our life.
But there are always some exceptions.
The investment philosophy of 91 year old Warren Buffett and 98 year old Charlie Munger hasn’t changed for decades now. These two die-hard proponents of value investing might have sounded much older in their 30s and 40s. And it would be too much too expect them to concur with the preferences of a generation that believes in getting everything delivered in under 10 minutes.
At the recently concluded shareholder’s annual conference of Berkshire Hathaway, Warren Buffett mocked the entire investment thesis of cryptocurrencies; no holds barred, and refused to subscribe to the theory of greater fools.
If you offer 1% of the US farmland to Warren Buffett for USD 25 billion or 1% of all apartments for USD 25 billion he might write you a cheque within a few hours. But if you offer him all the Bitcoins in the world for USD 25, he won’t buy it. You read it right, not even USD 25. Because he isn’t sure what he would do with them.
But there was a time when he refrained from technology stocks because he didn’t understand them, he claims. That said, Berkshire added Apple to its portfolio in 2016 and now it is one of the largest shareholders of Apple. Perhaps, cash flows and the on-ground delivery of the company did the trick.
So what is he buying now?
In March 2022, Berkshire Hathaway acquired Alleghany Corporation for USD 11.6 billion. Alleghany conducts insurance and reinsurance business through TransRe, RSUI group, and CapSpecialty. Alleghany Capital, on the other hand, holds stakes in companies from diverse sectors including engineering, auto, life sciences and hospitality, amongst others.
Interestingly, Alleghany Capital’s investment criteria resemble those of Berkshire Hathaway’s.
Alleghany Capital believes in picking up stakes in companies that:
- Are managed by experienced and like-minded people having long-term orientation and strategic vision to exploit growth opportunities
- Have scalable business models
- Hold leadership position in product/services categories they cater to
- Have established track records of earnings throughout business cycles
- Have limited risk of technological devolution
Alleghany Capital doesn’t shy away from investing in cyclical businesses (something that modern day fund managers aren’t comfortable with)
In the first quarter of 2022 (January-March quarter), Berkshire Hathaway made a net investments of USD 41.4 billion. At a time when high tech companies are reeling under pressure, Berkshire raised its stake in Apple. Moreover, it also acquired 11% stake for USD 4.2 billion in HP—a company that manufacturers desktops, laptops and mobile devices—Apple’s competitor in the PCs market, in other words.
It picked up 13% stake in Occidental Petroleum, a US-based upstream oil and gas company. If Berkshire decides to exercise its warrants to up its stake in Occidental, it would end up owning about 22% interest in the company.
Berkshire is also slated to acquire an additional 41.4% stake in Pilot Flying in 2023, a leading truck stop chain company in the North American markets.
How should you read these developments?
Going by the pattern of Berkshire’s recent investments, it appears that the legendary investors—Warren Buffett and Charlie Munger are bullish on the prospects of crude oil. Large commitments to Pilot Flying and an indirect exposure to cyclical businesses through the acquisition of Alleghany suggest that Berkshire sees strong prospects for the US economy.
Although many have perceived Berkshire’s investments in HP as a value pick, it could also suggest that digital adoption is far from over. The sale of PCs and laptops shot up during the pandemic owing to the hybrid work environment.
What are the key takeaways for Indian investors?
- Criteria for good investments and their performance parameters have more or less remained the same over the decades.
- If you follow investment processes and time-tested investment philosophies, your age may not make much a difference to your investment preferences.
- It’s extremely difficult to keep away from investment fads but that’s the only way you can safeguard your interest as an investor.
- To be a shrewd equity investor, you must clearly distinguish between short term and long term trends.
- You should diversify only when it adds value; else even an index fund can offer you equity exposure.
Some crucial observations
With Berkshire’s acquisition of Alleghany Corporation, the ownership of insurance companies is slated to consolidate in the US. In contrast, with LIC going public, the ownership pie of India’s life insurance sector is expanding and becoming more diverse as well.
We have extensively covered all the crucial developments for you just in case you want to know anything about LIC IPO and apply online.
You may also like to read: From fishing to bottom fishing!
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