Please ensure Javascript is enabled for purposes of website accessibility

1 Stock Warren Buffett Would Never Buy

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

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

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.