Expand the ‘Magnificent 7’ to include Warren Buffett’s Berkshire Hathaway, investment chief says – DIGIWIZ CENTRAL

Expand the ‘Magnificent 7’ to include Warren Buffett’s Berkshire Hathaway, investment chief says

Warren Buffett.

Reuters/Shannon Stapleton

Warren Buffett’s Berkshire Hathaway should be part of a “Magnificent Eight,” Jim Worden says.
Berkshire deserves a spot given its diversified business, cash pile, and investing nous, he says.
The investment chief doesn’t expect a recession but sees several challenges for the US economy.

The “Magnificent Seven” should be expanded to include Warren Buffett’s Berkshire Hathaway, one investment chief says.

The group of seven mega-cap growth stocks — Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia — have blown past the wider market this year, pulling the benchmark S&P 500 index into positive territory. Investors have wagered those select few companies are resilient enough to weather challenges such as elevated inflation, higher interest rates, and recession fears, and will emerge as some of the biggest beneficiaries of the artificial-intelligence boom.

“I’m not trying to take anything away from the Magnificent Seven, but it’s not a super-diversified portfolio,” Jim Worden told Insider this week, noting all seven are in tech or have tech-related businesses. Worden is the CIO of The Wealth Consulting Group, which manages over $5 billion in assets.

Berkshire commands a larger market capitalization than Tesla or Meta, but it’s not counted as a member of the Magnificent Seven because it’s not a fast-growing technology company. Including it would provide significant diversification to the group of high-flying stocks, Worden said.

Buffett’s company owns scores of businesses across a large swath of sectors, including insurance, railroads, utilities, manufacturing, real estate, retail, and services. It also holds roughly $350 billion worth of stocks, including multibillion-dollar stakes in Apple, Bank of America, Chevron, Coca-Cola, and Kraft Heinz.

What Berkshire lacks in growth and innovation, it makes up for with lots of other advantages, Worden said. For example, Buffett and his team use the premiums collected from their insurance operations as a source of permanent capital, allowing them to be patient and opportunistic in their investing without worrying that clients will pull their money out.

Buffett and his business partner, Charlie Munger, excel at buying into high-quality businesses at attractive prices, a strategy that limits downside and fuels outperformance over time, Worden said. The pair have also proven for decades that they can act prudently and avoid making emotional decisions, he continued.

“They can take that long-term view,” Worden told Insider. He underscored that Buffett and Munger care far more about the quality of a company’s management, its spending habits, and the value it creates for shareholders than daily moves in its stock or whether it hits Wall Street’s quarterly earnings forecasts. “They can take their time and be very disciplined.”

Buffett and his colleagues maintain large cash reserves too, allowing them to pounce on bargain assets and strike lucrative deals as a “liquidity provider” during periods when credit markets seize up and lenders pull back, Worden said. Berkshire has also capitalized on its dry powder by investing heavily in Treasuries, which are yielding much more today than 18 months ago thanks to a sharp rise in interest rates, he noted.

Moreover, Worden pointed out that Berkshire has a tech angle, as the largest position in its stock portfolio is a roughly 6% stake in Apple. Buffett likely appreciates the iPhone maker’s strong balance sheet and cash generation, powerful brand, competitive moat, proven staying power,and its focus on returning excess cash to shareholders via dividends and buybacks, he said.

Given all of Berkshire’s strengths, it deserves a spot in a “Magnificent Eight,” Worden concluded.

Clouds on the horizon

Worden shared his economic outlook with Insider during the interview. He struck a positive note, pointing out that corporate earnings have held up well, unemployment remains near historic lows, liquidity appears solid, and credit spreads remain tight.

However, he also flagged several headwinds, including the pressure of higher borrowing costs on the government, households, and businesses, the potential for stubborn inflation and further rate hikes, and the difficulty for consumers of trying to buy a house when mortgage rates are around 8% today.

If the Fed keeps raising rates, that could prove “problematic,” Worden said. “It increases the probability of something breaking, and it certainly increases the probability of a recession,” he said, adding that for now he only expects a mild economic slowdown.

Read the original article on Business Insider
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