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Buffett on cryptocurrency, Apple and Amazon

Morningstar  |  08 May 2018Text size  Decrease  Increase  |  
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The colourful duo behind Berkshire Hathaway discussed some of the world's largest companies, including several of their successful picks and misses over the last 12 months, and a blunt Bitcoin assessment.

On their preference for Apple

Munger revealed the company had increased its holdings of Apple during 1Q 2018. Having purchased an additional 75 million shares, Berkshire Hathaway is now Apple’s third-largest shareholder, behind Vanguard and BlackRock.

Buffett says he invested in Apple because he "came to certain conclusions about the value with which the capital was being deployed and about the ecosystem".

Crediting Apple with developing "extremely sticky" products to which consumers become attached, he describes it as an "unbelievable company [that] earns almost twice as much as the second most profitable company in the United States".

Buffett endorsed Apple's decision to buy back $100 billion of its shares, saying it was the technology company's most productive use of cash. Munger added that he and Buffett don’t approve of every buyback plan but doubted Apple would find an acquisition target at a good price.

Why they never invested in Amazon and Alphabet

Conceding they made the wrong decision on both the companies, Buffett says: "We've looked at it. I made the mistake in not being able to come to a conclusion where I really felt that at the present prices, the prospects were far better than the prices indicated".

On admitting he underestimated Amazon’s ability to simultaneously disrupt both retail and cloud computing, he says: "We watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. The problem is if I think something will be a miracle, I tend not to bet on it".

On Wells Fargo

Berkshire first invested in Wells Fargo nearly thirty years ago and is currently the bank’s biggest holder, with a nearly 10 per cent stake valued at around $25 billion. According to Buffett, the scandal-plagued bank had committed the "cardinal sin" of incentivising employees into a "kind of crazy conduct".

However, he maintains the bank is not inferior, either as an investment or morally, to its main rivals, noting most large financial institutions experience regulatory compliance or employee cultural challenges at various times.

"Wells Fargo is a company that proved the efficacy of incentives and it’s just that they had the wrong incentives," says Buffet. He believes the bank will only get stronger as it adapts.

On cryptocurrencies

Buffett believes cryptocurrencies will come to a bad ending. Refusing to view them as "productive assets", he instead says their value is determined solely by what someone is willing to pay for them. Buffett also notes cryptocurrencies tend to attract numerous "charlatans [and] people of less than stellar character".

Speaking even more plainly, Munger says: "I like cryptocurrencies a lot less than you do. To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out."

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© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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