Friday, March 2, 2018

Becoming Warren Buffett

If you have been investing for any length of time, you have probably heard the name Warren Buffett. He is also known as 'The Oracle of Omaha' and the world's greatest investor. Can you become a great investor along the lines of 
Warren Buffett?

Let's just take a few glimpses into his annual letter to shareholders 2017. I was 8 years old when Buffett's Berkshire Hathaway debuted at $19 a share. It's now trading at an eye-popping $304,500.

I do not own any shares in Berkshire Hathaway 'A' or 'B'.

Every year investors from around the world wait for his annual letter to shareholders just for a glimpse into one of the great investing minds history will ever know. It really is a good read.

Here is a link

Noteworthy Advice for Investors

  • read about his big bet with hedge funds. He creamed them. Learn to be a DIY - funds charge too much
  • p.13 "stick with big, easy decisions and eschew activity" (don't trade stocks, own them for life)
  • p.13 "high grade bonds increase risk"
  • p.13 don't use borrowed money to own stocks
  • p.10 "Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits" (Great advice).
  • p.7 " we have constructed Berkshire in a manner to withstand economic discontinuities"
  • p.5 "it is insane to risk what you have and need in order to obtain what you don’t need"
Berkshire collected 3.7 Billion in dividends last year. Realize most of us buy stocks but we don't sit on the board or have the ability to buy over 10% of a company.

I do however try and buy a business I know or use/frequent so I feel attached to it, so I'm not swayed into selling during a downturn. Knowing this allows me to hold for the long-term or forever.

I used to try but I soon realized I'm no Warren Buffett and it's virtually impossible to even try doing and investing the way he does. Matter of fact just lately I heard he was sitting on about 150 billion in cash looking for a place to invest. Yes, safe to say, I will never become Warren Buffett.

There are a plethora of taped interviews, TV appearances, books and articles on how he has become the world's greatest investor. Study them all you want, it makes for great entertainment.

Buffett takes a lot of RISK!

We don't or shouldn't, that's why we will never become Warren Buffett.

He doesn't just buy dividend paying stocks, he buys the whole company or enough shares that he has a controlling interest to make decisions on whether to continue operating the business or close it completely.

He loves to buy for dividends but his holding company Berkshire Hathaway does not pay any. For this reason I would never buy shares in his company.Talk about a dichotomy in investing styles.

How Buffett Invests

  • he has a lot of insider info you don't have
  • he knows people in the know you will never know
  • he never pays the taxes you and I would on trading and buying stocks
  • he has access to other people's money on a scale you and I will never ever attain
  • he buys the company
  • he loans money to banks 
When you are a newbie investor it's very easy to say to yourself, 'll just invest like Warren Buffett does. Fuggetaboutit!

Somebody in every walk of life is #1 and in the investing world it's Warren Buffett.

We should just try to use average to low risk with our investments and use the compound value of time + yield + dividend growth to grow our portfolio. It would take way too much risk to become Warren Buffett right now.

Warren Buffett also won the birth lottery. U.S. stock markets just don't deliver the returns they did in the golden era of investing like he was privileged to have. Credit was also being handed to him on a daily basis. Borrowed money is a lot harder to get these days and the U.S.economy is just on a slow grind and not in the boom times. We have just had a major market pullback so caution is warranted.

Buffett is having a hard time finding value for his money because he has so much of it. He said this on Monday 10 Feb 2018. You and I will NEVER have that problem.

We just buy small positions in blue chip stable dividend paying companies. These are also known as low beta companies. They have a great track record of paying those dividends for at least the last 10 years.

Can this investing style go sideways on us? You betcha!

You have to just hang in there and NOT sell when the worm turns and a full blown recession hits. It will eventually, just like it did in 2009 and even the greats like Buffett lost money. On paper at least. Don't panic if you want to be in the stock market. 

If that scares you, you can always buy an ETF or stay in cash and feel protected but that too will be sold off and you still may panic. 

In investing nothing is guaranteed. 

If you stick to what you know and like me, you buy the phone company that provides the data you use, the bank you have your investments with, the utility company that provides your nat gas and or power, the insurance company that provides your life insurance and a real estate trust that collects monthly rent seems like a great place to start.

Heck even Buffett owns these types of companies. Just don't borrow to invest to become Warren Buffett.

What You Can Do

  • read everything by John Maynard Keynes
  • invest with the next 10 years in mind
  • look for safe cash flow
  • invest in stable companies, no fluff
  • look for a good yield and sustainable dividend growth
  • buy at a good price not just whatever
  • AVOID all companies that pay a high yield combined with a high payout ratio - unsustainable and you will lose money.
  • read The Intelligent Investor by Benjamin Graham. It's the bible on investing and a definitive guide to value investing. Buffett models his style on 80% Graham.
Try not to let your emotions get out of whack. Convince yourself that constructing a dividend growth portfolio is the BEST strategy and it will work for you.

Be patient. This you will have in common with Warren Buffett.

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