Another segment of Buffett’s letter advises us to follow the principles of Jack Bogle and follow low-cost1 diversified index-based strategies. Buffett wrote:
Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. …
The commission of the investment sins listed above is not limited to “the little guy.” Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades.
If I combine Buffett’s two principles: focusing on stocks with high returns on equity and little to no debt and his belief in the “unsophisticated index” approach to investing, I think of the WisdomTree U.S. Dividend Growth Fund (DGRW), whose underlying investment strategy selects companies based on their high ROE and high ROA characteristics.
Top 20 Holdings of DGRW:
At WisdomTree, we believe that quality factors, such as high profitability and low leverage, are common traits among firms that consistently grow their dividends and have a high potential to increase their dividends in the future. These dividend growers tend to be less sensitive to increases in interest rates compared with the highest dividend yielders. Also, the higher-quality dividend growth subset is selling at a similar price-to-earnings multiple compared to the highest yielding subset of the market, which we think creates a timely opportunity.2
To learn more about the WisdomTree U.S. Dividend Growth Fund (DGRW), click here.
The source for this information is the Annual Shareholder Letter for Berkshire Hathaway, Inc.
1Ordinary brokerage commissions apply.
2Sources: WisdomTree, Bloomberg, as of 2/28/15.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Funds focusing their investments on certain sectors increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
Diversification does not eliminate the risk of experiencing investment losses.