I’d love it if Warren Buffett could be around forever. But with his right-hand man Charlie Munger dying recently, times are changing.
I’m always amazed at how adaptable the man is. Apple, for example, is currently his firm’s largest holding.
Here’s how I’m adapting Buffett’s wisdom to tailor my investments to a new age centred on advanced technology, including AI.
Technocracy
A technocracy is ‘the government or control of society or industry by an elite of technical experts’. This perhaps more relevantly describes our world order day by day.
I believe there are several advanced technology firms where Buffett’s investment strategies can be applied to generate wealth.
Here are my top three.
1. Tesla
Tesla is an electric vehicle, renewable charging, and AI software company.
The organisation plans to deploy robotaxis within the next year. This should create significant margin improvements for the firm.
With the share price currently down significantly, I think this is a perfect time to take on Buffett’s wisdom: “Be greedy when others are fearful”.
Now, there are rational concerns related to the company’s valuation. It has a high price-to-earnings ratio of around 75. Nonetheless, tech companies often have high valuations in comparison to other industries.
2. TSMC
Taiwan Semiconductor Manufacturing Company is the world’s largest semiconductor company. It manufactures the chips for almost all advanced technology firms on the planet!
Part of the reason it has such a high market share is its advanced capabilities beyond those of its competitors, like Samsung and Intel.
The shares are also well-priced at the moment, with a nice price-to-earnings ratio of around 17.
Buffett took a stake in TSMC, as it’s known, recently but backtracked and sold his holdings. He implied the reason for this to be the geopolitical uncertainty surrounding China and the US over Taiwan. And while I think he is right, not having any exposure to TSMC in an age dominated by semiconductors also seems unwise to me.
One of the points I think Buffett liked about the company is that it has capabilities other companies don’t have due to its scale.
3. Texas Instruments
Texas Instruments is another semiconductor company that’s located on US soil. It is also a solid business but arguably has less geopolitical risk than TSMC.
I recently analysed TSMC and Texas Instruments deeply and found that the latter may be the better investment. This was driven primarily by Buffett’s stance on the Taiwan situation.
The company’s price-to-earnings ratio is only 20. While this is good for the tech sector, it may not be a value investment like Buffett usually looks for.
The bottom line
Translating Buffett’s wisdom into the modern era is not an easy task. Adhering to his investment principles gives me a more substantial chance of success.
Here are my three main points to take into the technological future:
“Be greedy when others are fearful“. – I’ll buy great tech companies at low prices.
“The best holding period is forever”. – I’ll hold the great tech companies until I die or until they’re no longer outstanding.
“Accounting is the language of business”. – I’ll ensure that I rigorously analyse the financial statements before investing, no matter how much I love a company’s products.
The post Beyond Warren Buffett: strategies for the AI era appeared first on The Motley Fool UK.
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Oliver Rodzianko has positions in Apple, Taiwan Semiconductor Manufacturing, Tesla, and Texas Instruments. The Motley Fool UK has recommended Apple, Taiwan Semiconductor Manufacturing, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
