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1 Thing Warren Buffett Says You Should Never Do

By David Jagielski - Mar 24, 2021 at 6:25AM

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His latest shareholder letter didn't speak directly to the pandemic -- but it certainly alluded to it.

Billionaire investor Warren Buffett made his riches by looking for value and holding his investments for the long haul. Although it may be a boring strategy in today's world, where meme stocks and Reddit trends are what many retail investors are following right now, his strategy is a proven one that doesn't involve taking on significant risks.

And so when Buffett talks, people listen, often looking for guidance as to what to do. In Berkshire Hathaway's (BRK.A 2.10%)(BRK.B 2.12%) latest shareholder letter, he didn't talk much about the coronavirus or the challenges of the past year, but he did have one important takeaway for investors: "Never bet against America."

American flag.

Image source: Getty Images.

What does betting on America mean?

In the shareholder letter, Buffett talks of several success stories he's seen over the years in U.S.-based companies, including those in his hometown of Omaha, Nebraska -- and that over 232 years, "there has been no incubator for unleashing potential like America." He is making it clear to investors to have faith in U.S.-based businesses amid the pandemic, noting that there have been "severe interruptions" in the past but the country's progress remains "breathtaking."

A great example of that is investing in the financial industry. The financial crisis of over a decade ago sent many investors into a panic. Top bank stock Wells Fargo (WFC 0.64%) would go on to decline to lows that it hasn't come close to reaching since then, even amid the pandemic. In recent years, the company has also endured other challenges -- namely, a fake account scandal where employees set up accounts without customer authorization in order to boost the bank's sales.

But despite this, Berkshire Hathaway continues to own stock in Wells Fargo, and it has held on to it since 1989. While its holdings in the company may have changed over the years, it is one of Berkshire's more notable investments. And while there have been dips like the pandemic and financial crisis during that time, since 1989, shares of the bank are up more than 1,800% (the S&P 500 has risen 1,300% over the same period).

Berkshire has also been betting on U.S. healthcare

In November 2020, after Berkshire released its latest 13F filing, investors learned that the company was spending billions investing in the healthcare industry, buying up shares of AbbVie (ABBV -0.38%), Bristol-Myers SquibbMerck, and Pfizer.

Although the industry is continuing to struggle with COVID-19 and hospitals are deferring procedures to help manage the coronavirus, Buffett is optimistic about these businesses and their ability to persevere. One thing they all have in common -- they are all based in the U.S. And even if you had bought these stocks on March 1, 2020, and held on to them during these troubled times, you would have made gains on these investments.

^SPX Chart

^SPX data by YCharts

The S&P 500 has outperformed them, but the future is bright for these companies, especially as things in the economy get back to normal in a post-pandemic world. AbbVie, the top-performing stock among the four shown above, is coming off a mammoth $63 billion acquisition of Botox-maker Allergan.

The move expands AbbVie's portfolio, and in the company's latest results, released on Feb. 3, its sales of $45.8 billion were up 37.7% year over year for the period ending Dec. 31, 2020 -- largely due to the acquisition. In 2021, the company is projecting that its diluted earnings per share could reach as high as $6.89 -- more than 2.5 times the $2.72 per-share profits it reported for 2020.

The key takeaway for investors

Not every U.S.-based business is automatically a good investment. But the important takeaway from all this is that companies that were good buys before the pandemic and that were in strong financial positions will likely continue to remain strong buys even as challenges in the economy arise. Prior to 2020, AbbVie's profit margin was between 17% and 24% over the previous four years. Although Wells Fargo only banked 5% of its revenue as profit last year, prior to that it was normal for its bottom line to be more than 20% of sales.

Rather than getting caught up with the latest meme stock or Reddit trend, investors are better off following Buffett's approach: Invest in solid, blue-chip value stocks and bet on the U.S. economy -- regardless of how dire the situation may look.

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Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$150.00 (-0.38%) $0.57
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$478,669.51 (2.10%) $9,864.47
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$319.11 (2.12%) $6.61
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$53.91 (-0.15%) $0.08
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
MRK
$93.08 (0.83%) $0.77
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$45.89 (0.64%) $0.29
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$76.14 (-1.87%) $-1.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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