Buffet's Continued Investment in One of My Preferred Expansion Shares Stems from Two Key Factors
Buffet's Continued Investment in One of My Preferred Expansion Shares Stems from Two Key Factors
Buffett, renowned as a value investor, has also recognized some top-performing growth stocks throughout the century. Presently, his holding company, Berkshire Hathaway, has over $1 billion invested in a potential decade-leading stock, assuming your perspective. If you're considering adding Buffett's top stock pick to your portfolio, this might be the opportune moment.
The reasons why Buffett adores this profound growth stock
Nu Holdings (NU -0.53%) went public in 2021 at a little over $9 per share. Berkshire Hathaway promptly invested nearly a billion dollars in the company. It wasn't challenging to grasp what attracted Buffett and his team to Nu.
Nu is classified as a fintech business. Essentially, it leverages the significant markets of financial enterprises and the exponential growth rate of a growth stock. Operating in Brazil, Colombia, and Mexico, Nu is yet to gain widespread recognition among retail investors but has managed to capture the interest of prominent funds, like Sequoia Capital - a renowned venture capital firm that backed the company from its inception around a decade ago.
Nu's business model is straightforward: it offers financial services directly to Latin American residents through their smartphones. At the time, few competitors opted for this approach, preferring to deliver services through a comprehensive network of physical branches. This strategy added additional expenses to competitors' business models and impeded their ability to innovate and grow rapidly. Nu, for instance, successfully onboarded 1 million initial customers for its crypto trading platform within the first month of launch. In contrast, its competitors had minimal plans for a crypto platform.
Nu's adaptable business model has allowed it to accumulate over 100 million customers within its first decade of operation. Despite its market cap surpassing $70 billion, Nu's yearly sales growth remains above 50%. Two reasons suggest that Buffett will maintain his long-term investment in Nu. First, there are over 650 million Latin American residents, and Nu has only penetrated three of its thirty-plus potential markets. Its initial markets offer the best economics and demographics, but the company's multidecade growth trajectory is evident. Second, the company has recently turned profitable, and given its long-term potential, the shares appear inexpensive. The stock trades at just 25 times forward earnings, despite analysts predicting 54% annual EPS growth over the next five years.
Nu's growth curve is merely beginning, and Buffett's investment is likely to continue. However, if you're interested in joining, ensure you follow a tried-and-tested investment strategy as discussed below.
Employ this proven investment strategy for backing Nu Holdings
To reap rewards from Nu stock, stick to dollar-cost averaging. This investment strategy is straightforward yet effective. Essentially, it entails purchasing a fixed dollar amount of shares at regular intervals. For example, you could invest $50 in Nu stock every other month. When dealing with volatile stocks like Nu with long-term promise, dollar-cost averaging offers two primary advantages.
Firstly, dollar-cost averaging guarantees that you're consistently investing more money. Long-term wealth isn't solely derived from your initial investment but also from subsequent investments over time. Secondly, dollar-cost averaging ensures that you buy more shares when the stock price decreases. Had you employed this strategy for Nu in the past, you would have purchased shares at $10 each. However, you would have also added more shares to your portfolio when shares were priced below $5. On average, your purchase price would have been significantly lower than the current share price.
Buffett is clearly a long-term advocate for Nu. Dollar-cost averaging, even with modest initial investments, can help you develop an appealing position over time with the potential to create long-term wealth.
Given Buffett's investment in Nu Holdings, it's essential to consider implementing a strategic approach to finance when investing in this stock. One such method is dollar-cost averaging, which Buffett himself might endorse. By consistently investing a fixed amount of money at regular intervals, you can accumulate more shares when the stock price decreases, ultimately leading to a lower average purchase price.
As Buffett continues to hold a significant stake in Nu, his belief in the company's long-term growth potential is evident. Employing a dollar-cost averaging strategy can potentially allow individual investors to reap the benefits of this growth, as they gradually build a substantial position in Nu holdings, much like Buffet has done.