Source: Motley Fool – Sean Williams
Few investors are as highly regarded — and as successful — as the Oracle of Omaha, Warren Buffett. In just over six decades, Buffett’s investing strategy has grown his wealth from about $10,000 to more than $71 billion. Not too shabby, right?
The secret to Buffett’s investing strategy is really no secret at all. In fact, Buffett’s primary path of success has merely been to locate high-quality businesses and stick with them over the long term. He understands that time is his most powerful ally and allows dividends and stock appreciation to work their magic over years and decades. This has transformed his conglomerate, Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) , into a $350 billion, highly diversified juggernaut.
Generally speaking, Buffett is a straight shooter. He likes to buy established brands whose products and services could practically sell themselves regardless of how skilled the management team happens to be. Buffett likes products with lots of demand around them — so it’s worth considering whether there could be room in Warren Buffett’s portfolio for marijuana stocks.
Source: Flickr user Oswaldo.
On the surface there’s plenty of potential in the marijuana sector. The most bullish long-term outlook comes from GreenWave Advisors, which recently released a report predicting that the legal marijuana market could be worth as much as $35 billion by 2020 if the federal government legalized the drug. Even if the U.S. Drug Enforcement Administration doesn’t change its tune on marijuana, GreenWave forecasts that 37 states will legalize marijuana for medical purposes by 2020 and a dozen states will legalize recreational use of the drug. This timeline predicts a $21 billion market value for legal marijuana by 2020.
Certainly a market that could grow from just a few billion dollars to $21 billion-$35 billion in six years would attract Buffett’s attention, right?
Warren Buffett would probably like this
On one hand, marijuana stocks do offer a couple of factors that Buffett looks for in the companies he buys.
For starters, Buffett relies on long-term trends to dictate his buying or selling habits. He tends not to worry about a bad quarter or two from one of his companies if the businesses is positive over the long term. Banks, insurers, soft-drink makers, and so on are all set to benefit from a growing population that needs access to cash, protection from disasters, and something to drink. Meanwhile, an October 2013 poll from Gallup, which showed more people in favor of marijuana legalization than opposed, strongly suggests the marijuana movement might be unstoppable on a state level.
Marijuana could also see inelastic demand and pricing regardless of how well or poorly the U.S. economy is doing. Buffett loves buying stocks that offer the potential to outperform in any environment.