Who is Warren Buffett?

Warren Buffett is an American business man and investor and the 7th richest man on the planet at the time of writing. Buffett has managed to outperform the stock market for 60 years and owns Berkshire Hathaway, a conglomerate which owns businesses in many different sectors including; transportation, energy, retail and manufacturing.

As previously mentioned, Buffett has outperformed the market for 60 years, in fact he’s averaged a 20% return annually compared to the S&P 500s 10%. Beating the worlds most popular market index for so long is no mean feat so how has he been so successful? We discuss some of Buffett’s attributes and why it can be difficult to emulate his success.

Why is Buffett Difficult to Emulate?

First and foremost it takes a lot of work to be Warren Buffett, he’s been investing for roughly 80 years so you’ve got some catching up to do. It’s very difficult to invest over such a long period of time and requires keeping your emotions in check. Think of how many crashes and periods of stagnation that has taken place during Buffetts career and he’s managed to stay in the market all this time. Buffett is a very intelligent man with a very specific circle of competence, he doesn’t invest in anything he doesn’t understand thoroughly which can be hard to replicate. Your circle of competence might be very different to Buffett’s and you might be tech savvy as opposed to an expert in consumer goods. Peter Lynch, another very successful investor likes to use his investment of Dunkin Donuts as an example of why you should ‘know what you own’. He invested in the company after using the brand and realising that most consumers really liked the products available and he ended up making ten to fifteen times his initial investment.

Buffett likes to use a baseball analogy for his investing strategy, he says you should ‘wait for the right pitch’. If you’re like myself and don’t really follow baseball, what he’s actually referring to is you should be patient and wait for the right deal and don’t ‘swing at everything’. One of the most difficult things to do in the stock market is ignore the noise and FOMO and have the discipline to sit back and wait if you don’t think there is a good deal to be had, Buffett is the master of this.

Mohnish Pabrai’s Advice

Mohnish Pabrai is a hugely successful investor and we discuss him in more detail here if you’re interested. One of the points he likes to make is that you can be a ‘cloner’. Pabrai uses 13F filings to his advantage by finding out what other investors are buying. Each quarter, Buffett and other billionaire investors have to display what they own in their portfolios and Pabrai likes to find out what these successful investors are dipping their toes into as they tend to have more winners than losers so why not copy what they’re doing? You may not be able to emulate Buffett’s success but I guess nowadays you can at least try and copy his success.

So Should you ‘Copy’ Buffetts Portfolio?

Many investors do try to copy Buffetts portfolio although this may not be the best idea. Firstly, Buffett isn’t always right. Despite great returns over a long period of time, Berkshire has still had some misses and Buffett has lagged behind the S&P 500 over the last 15 years, he has actually beat the market in 12 out of the last 20 years but the years Berkshire has lagged behind is usually by a decent margin. Secondly, whilst the 13F filing does give us a glimpse into Buffetts portfolio it’s still several months behind in some cases. Even Warren Buffett who is often championed as a passive investor does buy and sell so you might be buying into companies he’s already sold, you just don’t know it yet.

In one of Berkshire Hathaway’s recent shareholders meetings Buffett stated that most people should just invest in the S&P 500 as opposed to his own company. Sounds a bit odd coming from the CEO but he makes a great point, Berkshire has grown so large (almost $650 billion net worth) that it’s becoming increasingly difficult to outperform the market. Buffett can no longer invest in small and medium cap stocks which often tend to have high returns as he needs to invest billions of dollars into a company to even make up 1% of his portfolio so he’s often limited to the Apples and Bank of Americas. It can also take weeks/ months to buy in and out of some of these positions as he can’t exactly go on Webull and make a $10 billion trade in 30 seconds.

Final Thoughts

It’s obviously very difficult to emulate Warren Buffett and if people could they would be extremely wealthy. Intelligence, patience and being humble enough to know when he doesn’t understand certain sectors has allowed Buffett to rise to the top of the investment world but it’s not all doom and gloom for us mere mortals. By taking the Mohnish Pabrai approach and checking what some of the best minds in the world are invested in you might have a better understanding on what to look for. Of course, Buffett himself as suggested that most people should just invest in the S&P 500 and we’d probably agree. Investing in index funds and passive low cost ETFs you can get better returns than a lot of mutual funds at a fraction of the cost.

The views expressed in this post are the authors and should not be construed as financial advice

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David is an Engineer and Finance Writer educated to masters degree level with sound knowledge in investing, the stock market and personal finance. We hope the information provided on this site can help you achieve your financial goals.

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