Want to mimic the investing style of Warren Buffet? This Globe and Mail article examines how to invest like Buffet.
The article references Validea, a company that allows you to track model portfolios each based on the philosophy of a different investment guru, including Buffet. At USD 29.95 per month for a subscription, a little rich for my taste, but I think it is a creative concept.
As for mirroring Buffet’s moves, replicating his style may not be that simple.
One, Berkshire Hathaway, Buffet’s investment company, does not pre-announce its plans. By the time an individual investor learns what Buffet has bought, there may have already been a price shift as others have jumped into the stock. The smaller the company’s capitalization, the more impact the announcement will have on the share price.
Two, some of Berkshire’s investments are in private companies or investments that a small investor cannot access. From Berkshire’s September 30, 2009 Form 10-Q filing with the US Securities and Exchange Commission, “On March 18, 2008, Berkshire acquired 60% of Marmon Holdings, Inc. (“Marmon”), a private company owned by trusts for the benefit of members of the Pritzker Family of Chicago, for $4.5 billion. In the second quarter of 2008, subsequent to this acquisition, Berkshire acquired additional shares of Marmon and currently owns 63.6%. Under the terms of the original purchase agreement, Berkshire will acquire the remaining interests in Marmon between 2011 and 2014 for consideration based on the future earnings of Marmon. Berkshire also acquired several other relatively small businesses during 2008. Consideration paid for all businesses acquired in the year ended December 31, 2008 (including Marmon) was approximately $6.1 billion.”
Three, a percentage of the returns experienced by Berkshire are derived from active business income, especially in the insurance sector. From the September 30, 2009 Form 10-Q, nine month revenues from operating assets were $82 billion and net earnings from these entities were $8 billion. So there is more to the performance of Berkshire than simply interest, dividends, and capital gains.
Four, Berkshire often makes a large enough investment to allow them to have some influence with the invested company. For example, at September 30, 2009, Berkshire hedd about $ 10 billion in Coca Cola stock and has been a long term investor in the company. Although no longer a Director, Warren Buffet sat on Coke’s Board of Directors from 1989 to 2006. Do you think Berkshire did not have some influence on the strategic direction of Coke?
Five, at times Berkshire trades at a premium due to the “Buffet Premium”. That is, there is value in having Warren Buffet making the decisions and that is reflected in the Berkshire share price.
If you do want to try and mimic the Buffet investment strategy and cannot afford to invest in Berkshire itself, you do have a few options.
Consider services such as Validea.
Invest in mutual funds that maintain significant investments directly in Berkshire shares. Sequoia Fund [SEQUX] has 30% of its assets invested in Berkshire and Fairholme Fund [FAIRX] has 14%.
Ignore the limitations discussed above and invest in the same public companies as Berkshire.
None of these will exactly match Berkshire’s results, but they might give a decent approximation.
Good luck.
