How To Get Paid To Invest With Buffett
Where in the world is Warren Buffett? That’s the question a lot of investors are asking themselves right now.
After all, during the height of the financial crisis in 2008, the Oracle of Omaha came out with guns blazing and engineered some of the best deals of his career. In fact, in October 2008, Buffett wrote a now-famous call to investors in the New York Times, saying: “Buy American. I Am.”
Of course, the market didn’t officially bottom until March the following year, but it didn’t matter. The rest was history.
Several readers over at my premium High-Yield Investing advisory have asked what I think Warren Buffet might be doing in this volatile market. There are screaming bargains everywhere – and Berkshire Hathaway has a massive $128 billion cash hoard.
That stockpile grew ever larger during the bull market as Buffett and his top lieutenants found fewer and fewer attractively valued stocks (especially larger companies capable of moving the earnings needle). But with $10 trillion or so in global market cap wiped out in just three weeks, the investing landscape has changed.
We do know what Buffett looks for when making an investment. From his 2019 shareholder letter (emphasis mine):
“…we constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers.
Finally, they must be available at a sensible price. When we spot such businesses, our preference would be to buy 100% of them. But the opportunities to make major acquisitions possessing our required attributes are rare. Far more often, a fickle stock market serves up opportunities for us to buy large, but non-controlling, positions in publicly-traded companies that meet our standards.”
I won’t speculate on what the Oracle might be doing specifically. We’ll know soon enough when SEC 13F filings come out in May. But we do know that Buffett loves to get greedy when others are fearful. He is also a master at sniffing out market inefficiencies – which are plentiful in chaotic downturns like this.
Berkshire is also known to extend cash lifelines to struggling businesses in turbulent times, extracting great terms for his stockholders.
My Favorite Way To Invest With Buffett
If the sudden 30-50%-off sale for many stocks is a great opportunity for Berkshire, then one of my favorite closed-end funds also stands to benefit. I’m talking about Boulder Growth & Income (NYSE: BIF).
After all, about $380 million of the fund’s $1.4 billion asset base (or 27%) is invested in Berkshire stock. The rest is judiciously spread among competitively advantaged leaders such as Cisco Systems (Nasdaq: CSCO) and Wal-Mart (NYSE: WMT) that exhibit Buffet’s favorite traits.
These holdings are demonstrably undervalued on their own. But BIF also allows you to invest in them at just 84 cents on the dollar. The fund is currently trading at just $9.34, a 16% discount to its net asset value (NAV) of $11.13.
Action to Take
I think Buffett will make the most out of this panic-driven selloff. And BIF will be a direct beneficiary. The fund hasn’t been this cheap relative to its portfolio holdings since 2016.
Even better, BIF pays a regular quarterly distribution. Based on previous payments, the trailing rate comes out to 4.46%. So not only are you investing alongside Buffett, but you’re also getting paid to do it – unlike regular Berkshire shareholders.
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