I respect Warren Buffett's investing skills to the ends of the earth. Still, I don't want to buy every stock he owns or manages through Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%).
Many of the industries Buffett knows like the back of his hand are far outside my own comfort zone, and the Oracle of Omaha isn't in the business of explaining his investment theses to outsiders. And where the Buffett portfolio overlaps with my personal areas of expertise, his picks often don't fit my needs.
It's alright to be inspired by a master investor's stock-picking style, but I don't recommend blindly copying even the finest minds on Wall Street.
Berkshire Hathaway Chairman and CEO Warren Buffett. Image source: The Motley Fool.
That said, I wholeheartedly agree with many of Warren Buffett's top picks. When he opens a position in a stock I already own, I can't help feeling like a brilliant investor gave a rubber stamp of approval to my own market analysis. Humans often react this way to coincidences and random patterns.
Maybe there's some substance to that rosy thinking, after all. Buffett wouldn't invest Berkshire Hathaway's hard-earned cash in my favorite stocks without a careful analysis with bullish results. So I do my homework, Buffett does his, and sometimes, our conclusions lead us to buy the same stocks.
I may not have access to the thinking behind Warren Buffett's investments in Amazon.com (AMZN 3.43%) and T-Mobile US (TMUS -0.06%), but I can explain why they also have a home in my stock portfolio -- and why I would recommend them to anyone in the current market.
Amazon
E-commerce and cloud computing giant Amazon is a fairly recent addition to Berkshire's holdings, though Buffett had his eye on the stock for many years. At Berkshire's annual shareholders' meeting in 2018, he explained why he didn't own Amazon shares despite speaking highly of the company, the management team, and the stock.
Buffett said: "I've watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. And the problem is, if I think something will be a miracle, I tend not to bet on it."
In other words, if something sounds too good to be true, it probably is. Who knew that Amazon would break the mold?
Later that week, a CNBC reporter asked if he would ever get over that hurdle and finally buy some Amazon shares. He didn't think so, for another relatable and human reason.
"It'll probably be tough," he said. "I've probably got so many psychological problems with the fact that I didn't do it that it's very hard to do it."
At the time, I had stopped kicking myself over missing the Amazon opportunity and picked up a couple of shares one year earlier. That doesn't make me a genius, but Buffett's explanation hit close to home. I just thought I had missed the boat on Amazon by a decade or more, so it felt good to see a financial mastermind wrestling with similar misgivings.
Of course, Buffett also got over his psychological hitch and gave the go-ahead to a billion-dollar Amazon investment before the next shareholder meeting. It was time to take advantage of Jeff Bezos' empire-building genius while Amazon was shaping the e-commerce and cloud computing industries in their early days.
My first Amazon purchase has more than tripled in value, gaining 220% in 5 1/2 years. I've also added more shares to this holding on three occasions -- and I'm seriously considering another swing at Amazon's fastball.
E-commerce is stealing market share from old-school retailers, and Amazon leads that charge from the front. Likewise, cloud computing platforms are edging out traditional software solutions, and Amazon Web Services is still the name to beat in that sector. The ongoing market furor over artificial intelligence (AI) tools and systems should only accelerate the cloud computing business.
I'm glad that the crippling fear of missing out is far behind me, and the stock looks like a great buy after trading sideways for three years. Amazon is building a business empire for the ages. It's a privilege to have access to this top-quality stock on the cheap in the summer of 2023.
T-Mobile
The magenta mobile network operator always struck me as a nimbler, more customer-friendly alternative to the Verizon and AT&T duopoly. But the company looked risky under the often whimsical leadership of CEO John Legere, whose "un-carrier" vision involved costly ideas such as doing away with long-term service subscriptions and paying your former network's termination fees when you switched to T-Mobile.
When T-Mobile handed out one free share of the company to each phone service customer in the summer of 2016, I shrugged it off as just another silly marketing move. But that share has gained 240% in seven years, and I expanded my T-Mobile holdings to a more substantial position last year.
John Legere has moved on, but his playful spirit lingers on. T-Mobile is still the most consumer-friendly mobile network on the market, at least among the Big Three. And I think that's the best way to build a service that can grow while Ma Bell and Big Red are shrinking.
When Warren Buffett built a $700 million stake in T-Mobile in 2020, the move was like a crack of thunder in a clear blue sky. Berkshire had sold nearly all its Verizon shares and its entire AT&T stake in 2016, so nobody expected the company to get into telecom stocks again. Moreover, the other phone service giants fit Buffett's portfolio because they pay generous dividends -- a shareholder-friendly cash management idea T-Mobile hasn't yet tried.
The muddled picture cleared up a bit when Berkshire also started a new Verizon investment in 2020, signaling an interest in the growth potential of serious 5G network operators. Moreover, T-Mobile's management has discussed a massive stock buyback program that could retire more than half of its existing shares and effectively double the stock price over the next two years. That would be another Buffett-esque plan, and it is already underway.
I can't say for sure that Buffett loves T-Mobile's business for the same reasons I do, but I don't mind seeing my customer-focus thesis supported by an ambitious buyback plan, too. And we seem to agree that a high-quality 5G network should lead to big business in the long run.
Even if you can't replicate Warren Buffett's magic, you can certainly take cues from his portfolio. Remember, investing isn't a one-size-fits-all game, but if you're looking to make smart moves in the market, Amazon and T-Mobile are two compelling picks right now. Don't take my word for it -- Warren Buffett seems to agree.
