Is It Wise to Invest Like Warren Buffet?

By | December 30, 2013

Warrant Buffet – the Oracle of Omaha- is one of the most intelligent and lucrative investor the world has ever seen. Being the third richest man in the World, Warrant Buffet has outperformed the returns of several stock market indexes over the last 50 years. Over the past 30 years, Warrant Buffet has managed to pull of annualized returns of 18% against 11% returns offered by the S&P 500. How does it he do it year after year and for such a long period?

Is it wise to invest like Warren Buffet?

The best part of Warrant Buffet’s investment strategy is that he does not rely on any black-box approach towards investing. One of the most interesting and surprising qualities of Buffet is the timing. Warrant Buffet was the student of master investor Ben Graham and when he started Berkshire Hathaway Inc., the cost of S&P was $46. Although, most of the investors lack the verve that Buffet possess, but it does not mean that one could not invest like Warrant Buffet.

Warren Buffet certainly has mettle for risk, but his investment strategies have shown two particular practices.

  1. Choose companies with a steady performance and healthy cash flow. The company should have the technology and capability to overcome new competition.
  2. Have some courage during economic slumps and buy stocks at the time of peak selling.

These two practices have been common in Buffet’s investment. If you are planning to invest like Warrant Buffet, here are some excellent tips to get started.

Start Investing Like Warrant Buffet

  1. Adhere to Index Funds: Index funds have the capability to offer handsome returns even if you do not have the vision of Warren Buffet. For most of the investors, it is difficult to participate in intra-day trading and index funds can ensure guaranteed returns. However, make sure to focus towards low-cost index funds and buy them over a period.
  2. Long term investments are most lucrative: One of the key factors differentiating Buffet from regular investors is his long term investments in durable companies including Coca-Cola and similar companies with a strong return history. Buffet often buys companies that guarantee dividends and profits for several decades to come. You should aim for companies that can offer returns for decades rather than quarterly targets.

“Our favorite holding period is forever.”

By Warren Buffet

  1. Do not imitate Warrant Buffet: It is pretty clear that you want to invest like Warrant Buffet, but never imitate his investment strategies to the book. It is highly unlikely that you would be able to predict the market. Most of the wannabe Buffet investors end up paying high trading fees. Buffet is the third richest man on Earth with a market cap of $188.5 billion and the strength to endure losses in the process of pursuing higher returns. On top of that, Buffet has a team of some of the best investing minds of the world. For an average investor, it is best to follow a passive approach and mutual funds are most suitable for them.
  2. Avoid market selling/buying frenzy during market crashes: One of the biggest weaknesses of even the smartest investors on the planet is to let their emotions control their trading. The moment you allow your emotions to take over, you start losing money. You need to stay put during market crashes and endure temporary losses for better returns.

Warrant Buffet profits from several other factors including his mass following that prop up his investments after every announcement and allow him to benefit from a strong support market. In addition to the support network, Buffet has been buying private companies for several decades now. The acquisition of BNSF Railway in 2010 for $34 billion was the largest one for Buffet and his investment firm. What followed next was a surprise. BNSF registered 2010 as its most profitable year and made nearly $17 billion in revenue. Further, the company has promised even better returns in the years to come. Well, we can call it the magic of Warrant Buffet and hard-earned luck.

The wisdom and impeccable timing of Warrant Buffet is nearly impossible to match. If you are trying to invest like him, choose ETFs (Exchange Traded Fund) with a strong cash inflow. You can choose insurance companies for long-term investments. Patience should be an important part of your investment strategy and choose long-term investments in future.

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