Billionaire investor Warren Buffett has been able to achieve considerable returns for decades, due to his stock-picking abilities and finding quality businesses to buy. Buffett has been able to do this by focusing on what he knows best and staying within what he refers to as his “circle of competence.”
His gains may have been even more impressive, however, had he ventured into faster-growing businesses; Buffett has largely avoided the tech sector. And he admits that there are areas where younger investors may have an advantage over him.
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Why Buffett believes younger investors may have an edge over him
In a recent interview at Berkshire Hathaway‘s annual meeting, Buffett said that younger people who have grown up with products will inevitably know more about new businesses and industries than he does. While he didn’t specifically mention artificial intelligence (AI), that’s a prime area where he may not feel comfortable investing, and where younger people may have an advantage over him.
Many younger investors are familiar with Nvidia (NVDA +1.90%) and other tech companies, and even by using their products, they will gain a better understanding of their competitive advantages, strengths, and weaknesses. Armed with that information, investors can make better investing decisions, potentially securing better returns in the process. Investors who have held on to Nvidia’s stock over the past five years have enjoyed gains of over 1,400%, dwarfing the S&P 500‘s gains of 77% during that stretch.
Today’s Change
(1.90%) $4.08
Current Price
$219.28
Key Data Points
Market Cap
$5.3T
Day’s Range
$213.89 – $222.30
52wk Range
$124.47 – $222.30
Volume
6M
Avg Vol
171M
Gross Margin
71.07%
Dividend Yield
0.02%
You can invest in tech and still invest like Buffett
Just because Buffett isn’t familiar with tech and generally avoids it, that doesn’t mean you can’t deploy his investing principles and apply them to the tech sector. Buffett, for example, values a strong moat, which is a defensible competitive advantage. Nvidia has this with its cutting-edge AI chips, which many tech giants rely on today. It also generates fantastic margins and has developed strong brand recognition in recent years. Its valuation is a bit high, but it’s the type of stock that I think Buffett may very well own if he were comfortable with investing in the sector.
That’s just one example, but there are countless others. The key thing to remember is to focus on areas that you’re comfortable with because the better you know a business, the better you’ll know its opportunities and threats, giving you an advantage over investors who don’t and who may be relying more on stock trends and charting patterns. And that may position you for some great returns in the long run.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Nvidia. The Motley Fool has a disclosure policy.
