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Headlines are terrible.
War, disease, and economic doom and gloom are dominant themes right now.
We investors need to see through the headlines to survive.
For instance, eventually the war in Ukraine will abate.
COVID-19 is declining and will eventually fall to the threat level of the flu… And with each wave, our treatments seem to improve.
Inflation will persist for a while. But like in the past, we will get it under control.
Still, when uncertainty is rampant, it can be difficult to remember these things.
That’s why it’s useful to look to greatness for guidance. In this case, I’m talking about Warren Buffett.
In this essay, I’ll show why some of his classic wisdom can help us make money today…
Finding Opportunity
Hi, I’m Jason Bodner, editor of Outlier Investor.
In these pages, we look for the opportunities of today… and of tomorrow.
I spent over a decade working on Wall Street – 14 years at major firm Cantor Fitzgerald and another two as a senior vice president at Jefferies.
My time there taught me many things… and helped me create a stock-picking system I now use on behalf of my readers.
It uses advanced technology to pore through mounds of data and sees where we can profit.
And one thing my system makes me confident of? No matter what’s happening in the world around us, we can always find opportunities… if we know where to look…
And that brings us back to Warren Buffett, one of America’s investing legends…
The Best Place To Put Your Money
Since the 1940s, we’ve been through multiple wars, famines, natural disasters, financial collapses, and regime changes.
All these terrible things happened… yet stocks were still the best place to put your money.
Buffett purchased his first stock, Cities Service Preferred (a U.S. oil company that eventually became Citgo), for $38 a share when he was 11 years old in 1942. He bought three shares for $114.75.
In 2019, he estimated that had he bought a no-fee S&P 500 index fund instead (with dividends reinvested), he’d have accrued over $600,000… A return of more than 5,000X.
Compare that to the alternatives.
Cash was horrible and would have devalued immensely.
Say Buffett had taken his $100 and stuffed it under his mattress instead of investing in stocks. Today, it would have a buying power of roughly $2,000.
Gold would have done slightly better – but would still be less than 1% of what he could have earned with the S&P.
The point is this: the U.S. stock market has been one of the best places to build long-term wealth through thick and thin.
Buffett bought American stocks when he first started investing at 11 years old.
And even in October 2008, in the midst of a global financial crisis, he told us to keep buying American (like he was).
And that message is still relevant in today’s climate…
“Buy American” Is Back Again
In Buffett’s most recent shareholder letter, he repeated his message of buying American one more time.
In the letter, he highlighted Berkshire Hathaway’s “four giants” as big drivers of the organization’s value.
Those “giants” are U.S.-based businesses with favorable current performance and bright futures.
The first giant is Berkshire’s collection of insurance businesses. It includes well-known names like GEICO, as well as many other lesser-known firms, most of which focus on U.S. markets.
Apple is the second giant. Berkshire owns just over 5% of the company. Apple is a big, strong firm with a history of dividend growth and plans to repurchase its stock. It’s a global company, but its heart is squarely in America (the largest iPhone market).
Third, we have BNSF Railway, the North American railroad company. Buffett rightly calls it “the No. 1 artery of American commerce” because so many goods are moved through the railroad. BNSF had $6 billion in earnings last year.
Lastly, there’s Berkshire Hathaway Energy. It provides energy in nine states and according to Buffett is “a leading force in wind, solar, and transmission throughout much of the U.S.” The company’s financial performance and transformation to clean energies are quite impressive.
These giants cover a number of different sectors and serve a great portion of American markets. In these giants, Buffett is buying almost every aspect of America.
So where does that leave investors wondering where they should put their money now?
American Plays
If you want a broad-based Buffett favorite, look to the S&P 500 (seriously). There is nothing wrong with betting on the market, and the index is loaded with America’s best companies from many different sectors.
Yet I know many investors want to try to beat the S&P… and in that case, we have to look for opportunities with strong growth potential.
So for a more focused play on U.S. firms, there’s another opportunity that my system is showing us.
It’s a long-term play with promise in a critical, yet growing industry: cloud computing.
Estimates put spending on cloud services at $1.3 trillion by 2025. That’s an annual growth rate of nearly 17%.
And the First Trust Cloud Computing ETF (SKYY), which tracks the cloud industry, is a great way to play both this trend and American stocks. More than 92% of the 80 or so companies it holds are based in the U.S.
It has more than $5 billion under management, and its top holdings include Pure Storage and Arista Networks, along with the titan’s Amazon, Alphabet, and Microsoft.
While it’s down 10.1% in 2022 as of this writing, it’s received buying attention from Big Money investors like institutions in the past, despite its recent selling pressure. Now is a good entry point.
Take a look:
So when the future is unclear, a page out of the Buffett book can help.
Simply put, invest in the best of America.
Whether broad-based (S&P 500) or focused (SKYY), investing in high-quality American companies has proven to be a solid choice… Even when uncertainty reigns.
Talk soon,
Jason Bodner
Editor, Outlier Investor
P.S. For even more opportunities, I use my proprietary system that shows me what companies will perform all the rest… the outlier stocks.
With outliers, we can milk our returns by targeting the stocks with the most promise with my advanced system. To learn more about how I find these outliers, you can go right here for the details.
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