Warren Buffett is one of the biggest—if not the biggest—investing icon in the world. He’s known for building his wealth steadily over the course of many decades, slowly at first, and then as his money grew, the pace increased dramatically. A well-known book labeled the process very well as, “The Snowball.” He started out saving and investing a little at a time, but soon the snowball grew, and as it kept growing, the pace at which it grew helped it to become a mammoth amount.
One thing that Buffett is famous for is the fact that he has largely avoided tech stocks his entire life. He bought a token share of Microsoft at one point, but that was more to appease his friend Bill Gates than it was anything else. He has been asked on numerous occasions why he has such an aversion to tech stocks, and his answer is pretty straightforward: most tech stocks are overvalued and not worth long term investments. The ones that are poised for success, such as Google or Apple, have fundamental traits and marketplaces that are different enough from traditional companies that he doesn’t feel comfortable trying to gauge growth.
So when it was announced that a group that included Buffett was making a bid for Yahoo’s web services company, there was quite a bit of surprise. Yahoo has not been a positively received company for the last year or so, and it doesn’t seem like a characteristic move by Warren Buffett at all. And before you jump into this excitement with your trades, there are some things that you need to know about what’s actually going on with this. For one, Buffett is only an investor within the group, and not a main figure himself. That position goes to Dan Gilbert, the founder of Quicken Loans and the owner of the Cleveland Cavaliers. Because reps from Berkshire Hathaway have not yet commented on this, Buffett’s role in the group is not known, but from the wording in news reports describing the bid, his role doesn’t seem to be a major one.
When it comes to stocks, the “Buffett Effect” is a real phenomenon. This occurs when Buffett takes a position in a company, and that company often immediately jumps in price. Many critics believe that this will be exactly what happens with Yahoo thanks to this. It’s also important to know that the portion of the company that is being bid upon is not going to remain a part of Yahoo for much longer, so even if there is value in the web side of the company as it exists, it will not benefit Yahoo’s core business in the long term. These portions include the stake in Chinese company Alibaba and Yahoo Japan, both of which are separate entities from Yahoo’s web services as they now stand. To read more into this potential deal than is actually there could potentially be a devastating move for investors.
Whether or not something is worth a long term investment shouldn’t necessarily sway your short term trades. Prices do move on news often, even if the impact is only psychological in nature. That certainly seems to be the case with this particular piece of news, so there is a chance that we could see Yahoo’s stock bounce up next week. But this doesn’t seem likely as this news is little more than an allusion to a big name and some speculation. Weaker things have moved markets in the past, but Yahoo is so beleaguered lately that there’s probably not enough here to benefit it. So whether you day trade stocks or binary options, this news is just some for now, and not actually actionable at this point.