Welcome to the ASX, Warren Buffett.
Finally, the world's greatest investor will become a major player in the Australian sharemarket.
The only question is what took him so long?
When viewed over the past 100 years, Australia has one of the best performing stock markets in the world.
Our companies pay attractive, growing, fully franked dividends (even nicer for us locals who can use those franking credits). They have strong competitive advantages. Our economy hasn't had a recession in 25 years.
What isn't there to like?
Buffett kicked off his ASX sojourn by investing $500 million in Insurance Australia Group Ltd (ASX: IAG), buying a 3.7 per cent stake in IAG.
It's loose change for Buffett, but significant and meaningful for IAG. No wonder IAG shares jumped higher 4 per cent higher yesterday.
In return for his $500 million investment, Buffett's Berkshire Hathaway will receive 20 per cent of IAG's consolidated gross written premiums and pay 20 per cent of claims.
More than that, from IAG's perspective, being associated with the Buffett name is like being given the royal stamp of approval. Buffett doesn't throw his name around lightly.
One net outcome from Buffett's investment is that he is likely to invest more than $2 billion per year into the Australian sharemarket.
Quoted in the AFR, Buffett said…
"If you come back in two or three years, you will find we have got four or five Australian equities… I would say that five years from now, we will have bought one or more positions in Australian banks."
Who's afraid of the so-called Sydney house bubble?
Not Buffett, it seems, although it's likely he'll be a patient investor, either building a stake over time, or waiting for an opportune moment.
The secret to Warren Buffett's success is simple. Buy strong companies, and let time work in your favour.
IAG looks to be a very canny investment from the Oracle of Omaha. If nothing else, from a dividend perspective, it looks to be a winner — IAG is trading on a forecast dividend yield that's close to 8 per cent once franking credits are included.
It sure beats the returns on offer from term deposits.
I do hold Berkshire Hathaway, it being my largest position, and by quite some distance. It's the perfect "sleep at night" holding.
I do NOT hold Insurance Australia Group. But definitely mark me down as interested. It's no Berkshire Hathaway, but Berkshire Hathaway doesn't pay a dividend, and IAG's forecast gross dividend yield is close to 8 per cent.
A match made in heaven? Maybe. Watch this space.
Regular readers of our free Motley Fool Take Stock email newsletter will know I'm on record as saying I wouldn't be surprised to see the RBA cut interest rates even further than the already low 2 per cent.
Seems I'm not the only one, with Charlie Aitken recently being quoted in the AFR as saying the cash rate will fall as low as 1 per cent.
One per cent.
Think about that for a moment. And cry into your term deposit.
One per cent interest rates may be great news for the mortgage belt, but it's another kick in the teeth for savers and retirees, especially given the average cash weighting in Australia's self-managed super funds is around 25%.
For those of us, me included, sick of watching term deposit rates go lower and lower, thankfully there are two attractive alternatives…
1) Dividend paying stocks, preferably of the fully franked variety.
2) US-quoted shares.
An investor's greatest fear is piling all their money into the market right before a market crash.
I've got news for you…
Investors, including perma-bears like Marc Faber, have a horrible record of predicting market crashes.
About a year ago, the author of The Gloom, Boom and Doom Report said on CNBC he expected stocks to drop 20 to 30 per cent within the next three months.
At the time, I said I'd gladly take the other side of that bet. Given market crashes come along very rarely, the odds were massively in my favour.
Seems I won that particular bet, hands down.
Since Faber's prediction, although admittedly global share markets haven't exactly set the world on fire, there has been no crash.
Your biggest risk is NOT that a market crash is just around the corner — it's that you'll pick the wrong stocks, for example, piling your cash into some high-risk mining stock punt in the hope you will strike it rich.
I've been investing for 25 years — hope is yet to make it on to my list of factors to check off before I invest some of my precious cash into a company.
Rest assured, hope is not a strategy we rely on when recommending stocks to our thousands of Motley Fool Share Advisor subscribers.
Sure, I've made my share of investing mistakes. It comes with the territory. In the stock-picking game, if you're right six times out of ten, you're doing very well.
That said, like you, I hate losing money.
But I'm not about to let that stop me investing in high quality companies, paying good dividends, trading at fair prices, and holding them for the long-term.
You might call it business focused investing. At Motley Fool Share Advisor — our subscription-only stock picking service — we call it Foolish Investing.
It's an investment strategy that Warren Buffett has used to build a vast fortune.
Buffett is a great investor, of that there's no doubt. But what makes him rich is that he's been a great investor for two thirds of a century.
Of Buffett's $70 odd billion net worth, $69.7 billion was added after his 50th birthday, and $67 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him.
Buffett's amazing secret is time.
The moral of the story? You're never too late to invest in the stock market, especially with interest rates at these low levels, and with the very real potential of them falling even further, perish the thought.
As I said previously, there are two ways I'm fighting back against these pitifully low term deposit rates…
Fight back plan #1 – Buy dividend paying stocks
Just to be clear, I'm not talking about the usual suspects, including Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) or Woolworths Limited (ASX: WOW), even though my family owns shares in all three companies.
I'm looking further afield, and to companies that are not only trading on decent dividend yields, but also are growing their dividend.
One such company makes it on Scott Phillips' list of 3 ASX best buy now stocks, the names of which are available exclusively to members of Motley Fool Share Advisor. Trading on a forecast gross (fully franked) dividend yield of 4.8 per cent, this dominant online player has plenty of room to grow its dividends in the years ahead.
Heck, it could even be one of the companies Warren Buffett owns in the coming years. It's right up his alley — a company with a wonderful competitive advantage, trading at a fair price.
Fight back plan #2 — Buy US-quoted stocks
I own Facebook shares, up over 300% since I bought them.
Try finding that sort of gain for an ASX-quoted blue chip!
Couple the pure growth potential of many US-quoted shares with the seemingly inevitable further fall of the Aussie dollar, and you're looking at what seems to be a compelling investment opportunity.
The aforementioned Charlie Aitken reckons the Australian dollar will fall to US65 cents or lower.
That's some tailwind for people investing in US-quoted companies. Add in the quickly recovering US economy, that the US is home to tech giants like Google and Apple — companies I already own — and it doesn't take a huge leap to comprehend the enormous opportunities in investing abroad.
Google and Apple are already on the Motley Fool Share Advisor scorecard, up 44 per cent and 136 per cent since we first tipped them for subscribers.
Our latest US pick is another online powerhouse. I use the company's services regularly, but haven't yet bought its shares.
It might be time to rectify the situation…
