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MoneyWeek Roundup

From Matthew Partridge, across the river from the City

Dear Reader,

The lessons from Warren Buffet’s decline
Matthew Partridge
On Wednesday, our editor, John Stepek, had a look at Warren Buffet’s bad week. On Tuesday, “he lost nearly $1bn (on paper) from the value of his holding in IBM”. Even worse, “another of his favourite stocks – Coke – disappointed too”.

The short-term reason for IBM’s fall has been that “revenues fell for the ninth quarter in a row” and “IBM also had to pay a chipmaker $1.5bn to take its chip-making business off its hands”. However, the longer-term problem is that “IBM made its money selling hardware”. Since that model has been hit by cloud computing IBM has "been trying to shift focus onto software and services”. The problem is that, “it’s not easy to go from being dominant in one field to then changing your entire operation for another”.

This highlights a wider issue with Buffet’s strategy of buying companies with “a nearly invulnerable market share position, sustainable profit margins and returns on invested capital, and superior earnings growth.” The fact is that, “eventually your moat can become your biggest handicap”. Worse they could end up holding you back “because you have a great big pile of ‘legacy’ assets that are swallowing up resources you could be using for something else”.

Of course, ”Buffett is an incredibly good investor”. John also “fundamentally agrees” with Buffet’s value investing approach. Sadly, “Berkshire’s sheer size – as Buffett himself has pointed out – means that now he has to hunt for decent companies at reasonable prices, rather than potentially fantastic companies at bargain prices”. Since “lots of big industries face serious risk of disruption”, John thinks that this is “not necessarily as safe a strategy as it might look”.

John also has other concerns, such as “the unquestionable issue of succession management risk”. As a result, he “can’t say I’d be desperately excited about the idea of buying Berkshire Hathaway right now”. The good news is that “at our last Roundtable, one of our experts dug up a stock that he reckons is a bit like buying into Berkshire Hathaway back in the 1970s”. To find out what it is, subscribe to the magazine and get four issues free.

Tesco has further to fall

Tesco shares have been hit by falling profits and recent revelations about poor accounting. However, Phil Oakley thinks that they have further to fall.

 • Tesco has further to fall

Do pensions policies get more short-termist than this?

The new pension reforms may encourage some people to cash in their final salary pensions. That would be a big mistake, says Bengt Saelensminde.

 • Do pensions policies get more short-termist than this?

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Who will lose – and win – from the falling oil price?

The falling oil price will affect everyone in Latin America. James McKeigue sorts out the winners from the losers.

 • Who will lose – and win – from the falling oil price?

What theme parks can teach investors 

You might think that the RDR has removed all hidden charges. However, Merryn Somerset Webb points out that you may still be paying commission on some investment products. 

 • What theme parks can teach investors 

A pinch of optimism can help boost your returns

Realism and scepticism are important investing skills. However, David Thornton also points out that it occasionally doesn’t hurt to be positive.

 • A pinch of optimism can help boost your returns

Finally, we’re holding a MoneyWeek workshop on 8 November. This is an opportunity to hear directly from Merryn Somerset Webb, John Stepek, Ed Bowsher and Stephen Bland.

That’s all – have a great weekend,

Matthew Partridge
Senior writer, MoneyWeek

John Stepek 
David Stevenson
Matthew Partridge 
Ed Bowsher
Merryn Somerset Webb

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