Warren Buffett, the legendary investor, has spent over 60 years building his investing legacy. While millions look to him for guidance on where to put their money, investors can learn just as much from the investments he avoids. Here are six investments Buffett remains cautious about and his reasons for doing so.
Buffett has long been wary of tech startups and the industry as a whole. Companies like Amazon, Apple, and Facebook, now household names, were avoided by Buffett for years due to their high price-to-earnings ratios and unpredictability. His “margin of safety” philosophy means he wants to invest where there’s less risk of losing money, something many tech companies don’t offer.
Tesla, surrounded by controversy these days, was never considered by Buffett even before making headlines this year. The stock prices can be too speculative, and the company operates in an industry primed for rapid innovation, making it challenging for a single brand to stand out. Elon Musk’s volatile personality also doesn’t fit the mold of someone Buffett would align with.
It’s no surprise that Buffett has spent years avoiding cryptocurrency. Like tech companies, he isn’t interested in investing in something he doesn’t fully understand. However, Berkshire Hathaway did raise eyebrows when it invested in Nu Holdings, a Brazilian company with its own crypto platform, though the amount was incredibly small compared to Buffett’s entire portfolio.
Buffett doesn’t shy away from derivatives entirely but applies his risk aversion to them, viewing them as “financial weapons of mass destruction.” Derivatives are complex financial contracts whose value depends on the performance of an underlying asset.
Buffett’s cautious investment strategies
Considering their role in the 2008 financial crisis, Buffett’s caution seems warranted.
Buffett has also been uninterested in gold, calling it an “unproductive asset.” However, Berkshire Hathaway did invest in Barrick Gold, one of the world’s largest producers of gold and copper, in 2020. The reasoning could have been that it wasn’t actually gold itself, but a company that sold gold. The partnership was short-lived, with the firm selling its shares months later.
One investing mistake that has haunted Buffett is when he bought stock in Delta, American, Southwest, and United Airlines in 2016. The unforeseen pandemic in 2020 caused Berkshire Hathaway to sell their shares at a substantial loss. Although airline travel has resumed, continued reports of aircraft failure and other issues are enough to keep Buffett away.
Many of Buffett’s fans see his successes as evidence of his financial genius, but the lessons he learned from his failures may be just as important. The investor has consistently followed his investing principles, which rely less on chasing trends and more on patience and understanding a company’s true value. If you’re looking to follow in his footsteps, look for companies with consistent earnings and strong leadership.
Buffett’s cautious approach serves as a valuable lesson for any investor. His focus on long-term value and risk management has helped him avoid many of the pitfalls that others have fallen into. Whether he’s investing in or avoiding certain companies, Buffett’s strategies offer a roadmap for those looking to build wealth sustainably.
