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1 Stock Warren Buffett Would Never Buy

By John Maxfield – Feb 23, 2014 at 10:45AM

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While it's impossible to read Warren Buffett's mind, it isn't impossible to conclude that he would never invest in Annaly Capital Management, the popular and high-yielding mortgage real estate investment trust.

I don't want an easy business for competitors. I want a business with a moat around it. I want a very valuable castle in the middle and then I want a duke who is in charge of that castle to be very honest and hardworking and able.

-- Warren Buffett

If Warren Buffett would buy a stock, you should take note. And the same can be said of a stock that he most certainly wouldn't buy.

Take Annaly Capital Management (NLY 2.36%), one of the biggest and most popular mortgage real estate investment trusts, as an example. It pays a generous 11% dividend and is widely considered to be among the best in its class -- though, I would certainly question whether the latter is true. Annaly has been a huge winner for investors over the course of its existence, but the future may not be as bright.

There's simply no way that the Oracle of Omaha would even remotely consider buying its stock for either himself or Berkshire Hathaway (BRK.A 0.35%) (BRK.B 0.40%).The reason is simple. As Motley Fool contributor John Maxfield explains below, Annaly has absolutely no competitive moat to protect its bottom line.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Annaly Capital Management Stock Quote
Annaly Capital Management
$21.65 (2.36%) $0.50
Berkshire Hathaway (A shares) Stock Quote
Berkshire Hathaway (A shares)
$478,675.55 (0.35%) $1,655.56
Berkshire Hathaway (B shares) Stock Quote
Berkshire Hathaway (B shares)
$317.43 (0.40%) $1.25

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

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