{"id":52573,"date":"2014-06-10T22:19:28","date_gmt":"2014-06-11T02:19:28","guid":{"rendered":"http:\/\/countingpips.com\/?p=52573"},"modified":"2014-06-10T22:19:28","modified_gmt":"2014-06-11T02:19:28","slug":"why-this-is-the-stock-trade-of-the-decade","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/06\/why-this-is-the-stock-trade-of-the-decade\/","title":{"rendered":"Why This is THE Stock Trade of the Decade\u2026"},"content":{"rendered":"
June 10, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

You don’t have to like Warren Buffett to agree with his point of view.<\/p>\n

We’ll be honest: Your editor isn’t a Buffett fan.<\/p>\n

Or if we’re being fair about it, we’re no fans of the media perception of Warren Buffett.<\/p>\n

But there’s no denying it. When it comes to investing in one particular sector Buffett has got it spot on.<\/p>\n

So in this case, we’re with Buffett all the way…well, nearly all the way…<\/p>

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According to a report from Bloomberg:<\/p>\n

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‘Berkshire Hathaway Inc., (BRK\/A) which has struck deals to expand its utility business in Nevada and Western Canada, plans more investment in the industry, in part by betting on renewable power, Chairman Warren Buffett said.<\/em>’<\/p>\n<\/blockquote>\n

Buffett made a good call on energy in October 2007. He sold Berkshire Hathaway’s [NYSE:BRK\/A]<\/strong> stake in Chinese oil firm PetroChina [NYSE:PTR]<\/strong>.<\/p>\n

That was the peak of the market. From the end of October 2007 to a year later in October 2008, the PetroChina share price collapsed 75%.<\/p>\n

It has been a slow recovery for PetroChina. But it is on the up. The company still has a market capitalisation of US$222 billion. And if Buffett thought the stock was expensive in 2007 at 16.5-times earnings, he shouldn’t have any problems with its valuation now that it’s just 11-times earnings.<\/p>\n

So is this the kind of investment Buffett is gunning for?<\/p>\n

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Exxon was a good buy for Buffett<\/strong><\/h2>\n<\/p>\n

We can’t say for certain. We know it’s the kind of company emerging markets<\/a> analyst Ken Wangdong is running his slide rule over. You can read more from Ken below with his take on another emerging market economy, India.<\/p>\n

But back to Buffett. We would be surprised if oil and gas<\/a> weren’t at the top of his buy list…even though the mainstream likes to focus on the politically correct renewable energy sector.<\/p>\n

Of course, Buffett already has a big exposure to the oil and gas industry. Last November, Berkshire Hathaway bought US$3.45 billion-worth of Exxon Mobil Corp [NYSE:XOM]<\/strong> shares for an average price around US$86.<\/p>\n

Today Exxon shares trade for US$101.<\/p>\n

So far it has been a good trade.<\/p>\n

But to our minds, the trade is more than just about what Buffett buys and sells. It’s about the perception the mainstream and most investors have of Buffett.<\/p>\n

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Not everyone could get this deal in 2008<\/strong><\/h2>\n<\/p>\n

If you read or listen to most so-called value investors<\/a>, you’ll find yourself falling asleep within 10 seconds of them opening their gob.<\/p>\n

They’ll talk to you about ‘margins or safety’ and ‘valuations’. They’ll tell you that you have to take apart a company’s balance sheet and profit and loss statements.<\/p>\n

They’ll say you should only invest in a company that’s growing revenues this much and profits that much. And, most of all, the company should be the market leader in its field.<\/p>\n

These guys put so many caveats and conditions on buying a stock, it’s a wonder they ever buy any.<\/p>\n

In fact, so-called ‘Buffett-style’ value investors seem to spend most of their time telling investors not to buy stocks, because they’re too expensive according to their valuation methods.<\/p>\n

When stocks are high, valuations are too high, so you shouldn’t buy.<\/p>\n

When stocks are low, they’re too risky, so you shouldn’t buy.<\/p>\n

If you think we’re kidding, think back to the period from September 2008 through to April 2009. That was just after the stock market<\/a> collapsed, when stocks were trading for cents on the dollar.<\/p>\n

Yet how many value investors do you know who leapt into the market back then saying that stocks were a screaming buy because they were now cheap?<\/p>\n

We don’t remember a single value investor doing anything of the sort. That goes for Buffett, too. <\/p>\n

Sure, he took a big stake in Goldman Sachs [NYSE:GS]<\/strong>. But he didn’t buy into the market on the same terms as everyone else. In order for Buffett to hand over hard cash, he forced Goldman to issue a special kind of share that paid a bumper dividend.<\/p>\n

In other words, despite the market crashing by more than half during the year, most value investors still couldn’t see value in the market — Buffett included.<\/p>\n

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Contrarian investors cleaned up<\/strong><\/h2>\n<\/p>\n

By contrast, another type of investor was piling into stocks in late 2008 and early 2009.<\/p>\n

We’re talking about contrarian investors. We’re not too modest to say that we were among them. We recommended that investors buy into a combination of beaten down quality stocks and high-risk speculations.<\/p>\n

The strategy paid off. Many of those who followed our advice bagged multiple triple-digit percentage gains.<\/p>\n

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And though the market is at a different point today for investors, we see similarities. Just like in 2008 and 2009, so-called value investors are still saying the stock market<\/a> is too expensive and too risky.<\/p>\n

They said it for most of the past year, as stocks continued to rise. And if we’re right about where the market is going next (up), they’ll still be saying it a year from now when the Aussie market could be 20–30% higher.<\/p>\n

One of the best opportunities they’ll miss out on right now is the energy sector. A sector that appears to be at the top of Buffett’s shopping list.<\/p>\n

Few people appreciate that Buffett has become one of the world’s richest men by taking big risks. He borrowed money from people to invest in his investment companies. He has used complex derivatives in order to make billions for his insurance companies.<\/p>\n

And he has taken big risks by punting on stocks that few others wanted to touch.<\/p>\n

Now he’s buying the energy sector, and we are too. We especially like the fossil fuel energy market<\/a>. Oil and gas are our favourites. But we’ll also admit that dirty old coal intrigues us too.<\/p>\n

Even if it’s just because everyone hates coal, or that the big US university endowment funds are selling coal stocks; it’s got contrarian investment opportunity written all over it.<\/p>\n

But whatever your energy source of preference, there is no doubt that, regardless of what happens to the world economy, there will always be a demand for energy. That includes oil, gas, coal, and crazy as it may seem, even renewable fuels.<\/p>\n

If you’re looking for the trade of the coming decade, we’ve got one word for you — energy. It’s a sector we intend to follow closely for years to come.<\/p>\n

Cheers,
\n Kris+<\/a><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au You don’t have to like Warren Buffett to agree with his point of view. We’ll be honest: Your editor isn’t a Buffett fan. Or if we’re being fair about it, we’re no fans of the media perception of Warren Buffett. But there’s no denying it. When it comes to investing in one particular […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-52573","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/52573","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=52573"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/52573\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=52573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=52573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=52573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}