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Warren Buffett may be retiring at the end of the year, but his investing wisdom will live on for a very long time afterwards.
Here, I want to show how some of Buffett’s lessons can offer valuable perspective, even for investors who primarily focus on growth stocks (unlike Buffet).
Understanding where we are
Right now, the US stock market’s pricey. This is reflected in the fact that Buffett’s holding company, Berkshire Hathaway, has been a net seller of stocks for some time. It has massively slashed its giant stake in Apple and sold down many financial stocks (perhaps in anticipation of a recession?).
Buffett most famously said: “Be fearful when others are greedy and be greedy when others are fearful”. In early April, the market tanked when President Trump dropped his tariffs bombshell and stoked a lot of fear.
Since then though, the market’s bounced back strongly, and I think a lot of greed is taking over again. For example, one artificial intelligence (AI) growth stock that’s caught my eye is CoreWeave (NASDAQ: CRWV). This newly-public stock’s up 94% so far in May, suggesting that ‘risk-on’ mode is back again.
I haven’t been a net seller of stocks like Buffett. But knowing that we’re in a richly valued market characterised by rising greed helps me not become greedy myself. Were fear to take over again, I’ll start getting greedy.
Don’t invest in overcomplicated business models
Buffett has admitted to a limited understanding of AI technologies. He said: “I really don’t know anything about it.” That underscores his cautious approach to investing in sectors he doesn’t fully comprehend.
Returning to CoreWeave, is this a business I fully understand? On one level, yes. The cloud company operates data centres that are custom-built for AI workloads. It essentially rents out this AI infrastructure to other organisations and companies.
It’s backed by Nvidia and has key contracts with Microsoft and OpenAI — all three are innovative leaders in the AI revolution. CoreWeave’s revenue surged 420% in Q1 to $982m, which is certainly eye-catching.
However, this doesn’t mean I’ll rush out to buy the shares. Microsoft accounted for over half of CoreWeave’s revenue last year, indicating high customer concentration risk.
Moreover, I’m still learning about some complexities of the business model, illustrated below.
Buffett cautions us to “never invest in a business you cannot understand”. Therefore, I need to do further research to understand what I might potentially be investing in with CoreWeave.
If I can’t perceive a competitive advantage due to complexity, I’ll put the stock in what Buffett calls the “Too Hard” box and move on.
Be patient
Finally, Buffett says that the stock market is “a device for transferring money from the impatient to the patient.”
It’s too early to tell if CoreWeave will be a stock market winner. It may well become one, but if I invest at the wrong time, it could still turn out to be a lousy investment for many years. Even the best companies can produce poor returns if purchased at the wrong price.
By contrast, if I’m patient, I’ll likely be presented with a far lower valuation whenever there’s another market sell-off. I’m watching it closely.
