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Does it still make sense to invest like Warren Buffett?

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Billionaire investor Warren Buffett tells CNN's Poppy Harlow that Apple makes an "incredible product."

Posted: May 6, 2019 2:00 PM
Updated: May 6, 2019 2:00 PM

Should I still invest for the long-haul like Warren Buffett?

Buffett's Berkshire Hathaway is lagging the market this year. That's largely because of the huge drop in the stock price of Kraft Heinz, one of Berkshire's biggest holdings. Other top Berkshire investments, including Wells Fargo and Coca-Cola, have underperformed the market.

Berkshire also reported on Saturday that first quarter profits were weak at its massive insurance unit — and shareholders asked Buffett several questions at the company's shareholder meeting Saturday about the tough competition Berkshire's Geico unit was facing from rival Progressive.

So it may be tempting to say that the Berkshire model of investing in blue chip stocks and owning quality, market-leading businesses is broken.

But that might be a mistake. For one, Buffett is not a short-term momentum investor and is probably not losing any sleep over how the company's portfolio has done during the first four months of 2019.

Looking at the performance over a longer time frame, you'll find that the Oracle of Omaha is still topping the broader market.

Berkshire shares are up about 70% over the past five years and 270% over the past decade. Compare that to the S&P 500, which made gains of just over 55% and 220% for the same time periods.

Buffett's idea of a good buy-and-hold value stock has evolved, in part because of investments made by widely regarded Berkshire executives Tedd Weschler and Todd Combs.

The top stock in Berkshire's portfolio is Apple, rather than a stodgy food company, railroad or financial services company. Buffett also revealed last week that Berkshire bought shares of Amazon for the first time.

And during the shareholder event this past weekend, both Buffett and Berkshire vice chairman Charlie Munger talked regretfully about missing out on much of the success of Google.

Now that they have a stake in Amazon — 22 years after the company first went public — it may not be a huge shock if Berkshire eventually buys a stake in Alphabet, too.

If so, that would give Berkshire exposure to three of the five FAANG stocks. Buffett and Munger didn't talk about Facebook or Netflix at this year's event.

Don't rule out the possibility of Berkshire buying more dynamic companies like Apple and Amazon in the future to give the portfolio a kick.

Berkshire also has $114 billion in cash. Although Buffett has been using a lot of cash to buy back Berkshire stock, he has also discussed how he'd much prefer to make an "elephant"-sized acquisition to boost Berkshire's profit.

Buffett may still be old school, but he can learn new tricks. Apple even released a new Buffett-themed mobile game Saturday. Granted, the goal is to successfully hurl newspapers at doorsteps and through office windows, which is so 20th century. It's a start though.

What's the best way to invest for the long haul? Are bonds better than stocks? Do you have questions about how to build wealth? Ask us here and you may be included in a future column.

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