Warren Buffett’s Investment Strategy Faces Unexpected Challenges

When Warren Buffett shares his investment insights, Wall Street pays close attention. Since becoming CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in the mid-1960s, he has achieved an astonishing return of more than 5,580,000% on Class A shares (BRK.A) as of the closing bell on Nov. 7.

This impressive performance nearly doubles the average annual total return of the S&P 500, including dividends. Investors eagerly await Berkshire’s quarterly Form 13F, which details the stock trades made by Buffett and his investment team, Todd Combs and Ted Weschler. Following Buffett’s lead has been a reliable investment strategy for years.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

However, even the most seasoned investors can make mistakes. Buffett’s long track record is colored by some missteps, such as missing out on significant gains from Walt Disney, an ill-timed exit from a stake in Paramount Global, divesting from Wells Fargo following its scandal, and experiencing a $444 million loss with grocery chain Tesco.

Trump’s Election Alters Stock Market Dynamics

On Nov. 6, the Associated Press declared Donald Trump the winner of the presidential election. During his first term, stocks surged, with the growth-oriented Nasdaq Composite climbing by 138%.

As always, changes in leadership bring uncertainty. Investors are curious about Trump’s approach to the rising national debt, which remains a pressing concern for the U.S. economy, even if it isn’t an immediate threat to stock performance.

Another worry involves Trump’s proposal to impose tariffs on imports. His campaign suggested a 60% tariff on goods from China and up to 20% on items from other countries.

Former President and current President-Elect Donald Trump addressing reporters. Image source: Official White House Photo by Joyce N. Boghosian.

While tariffs could enhance the competitiveness of U.S. goods and reduce trade deficits, they may also raise prices for consumers and hurt international relations.

Buffett’s Costly Bets on Tax Rates

Buffett forecasted that corporate income tax rates would eventually rise, which has now proven incorrect. His comments made during Berkshire Hathaway’s annual meeting suggested selling some Apple stock to lock in tax advantages at the current rate of 21%.

It doesn’t bother me in the least to write that check and I would really hope with all that America’s done for all of you, it shouldn’t bother you that we do it. And if I’m doing it at 21% this year and we’re doing it a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year.

Unfortunately, Buffett’s bet on higher taxes has backfired. As Apple’s stock has appreciated, Berkshire sold around 100 million shares. Records indicate that the fair value of those shares was $69.9 billion at the end of September, down from the previous quarter.

Buffett’s decision to sell for tax reasons has cost Berkshire Hathaway roughly $21.2 billion in missed gains, reflecting Apple’s closing price of $227.48 per share on Nov. 7.

While it’s understandable for Buffett to reduce exposure to Apple, given the company’s slowing sales, the decision to cut back by two-thirds in a year for tax reasons has proven to be a very costly error.

Spotlight on New Investment Opportunities

If you feel you missed out on investing in top-performing stocks, now might be another chance. Occasionally, analysts issue recommendations for stocks they believe are poised for a significant rise.

Take a look at the following examples:

• Amazon: An investment of $1,000 in 2010 would be worth $23,446 today!*
• Apple: A $1,000 investment in 2008 would have grown to $42,982!*
• Netflix: If you invested $1,000 in 2004, it would now be worth $428,758!*

Currently, three companies are being highlighted as potential investment opportunities, and it may be wise to act quickly.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 4, 2024.

Wells Fargo is an advertising partner of Motley Fool Money. Sean Williams has positions in Wells Fargo. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Walt Disney. The Motley Fool recommends Tesco Plc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.