Beating the Market Like Buffet. Really?

Beating the Market Like Buffet. Really?

The Buffett Dream

Warren Buffett. What’s not to like? For the money minded, he’s a billionaire, and one of the world’s richest people. For the business minded, he runs his own company culture in a sustainable and respectful way, and rewards good management by keeping out of the way. On the ethical side, he’s committed to giving away 99% of his wealth after his death. He’s also humble, continuing to live in the same modest home he originally purchased decades ago, and he’s funny, if you’ve ever heard him speak.

Buffett engages in value investing. That means he picks companies to invest in that have good track records of growth, good management, a great future, and they’re selling for a relatively cheap price.Amongst value investors, who seek out cheap, good quality companies to buy and hold for the long term, Buffett’s views on valuing companies, and the work of his mentors are the holy grail. Buffett is held up as number one on the value investing pedestal.

The dream breaks down

It’s when we start to look at Buffett in the context of replicating his success that this reasoning gets unstuck. Okay, put down the pitch forks and fire torches. I’m not anti Buffett. Hear me out here.

Buffett is the poster boy for getting rich through buying cheap, good quality companies. They say that if you want to achieve something, find someone who has done what you want to do and then do what they did. So how Buffett makes decisions is a point that is of great interest to value investors. I’m going to argue, however, that you probably won’t achieve Buffett’s success.I know that’s a big call.

You need to be Buffett to achieve his success

Buffett is as famous and followed as he his because he is an anomaly. He is really, really good at what he does, puts a lots of time into it (he reads company reports and other material for hours every day), and loves finding quality stocks. If you read, or watch anything about Buffett, it doesn’t take long to realise it’s more than just about money for him. Buffett’s a business person first, investor second. He loves reading, stock analysis, and researching good quality assets. He is surrounded by excellent minds (Charlie Munger, his vice Chairman at Bershire Hathaway, is intellectually brilliant). Buffett has enormous piles of patience. His wealth is the result of compounded returns over decades, and he has the patience to wait for years to pounce on a quality stock, and then wants to hold it forever.

So let’s recap. To replicate Buffett’s success, you need more than his biography. You need lots of time to research companies, you need to love business, you need the patience to wait for stocks to come into your price range, even if it takes years, and you need to be surrounded by brilliant minds that love the same thing as you.

Boredom reigns

I’m a finance nerd, but unfortunately, even to me, the above paragraph sounds rather… boring. I don’t care enough about companies to spend that much time on them. So I’m unlikely to achieve Buffett’s success. As are you, if you also find the idea of that boring.

Now there will be some people that find Buffet’s life to be really exciting, and in that case, I say, go for it! You may yet become the next Buffett. I don’t think there will be that many of you though.

The secret of Buffett’s success

In this article we’ve outlined the real secret of Buffett’s success. He loves his job so much it’s not a job to him. That’s it.

So if, like me, you’re not that interested in business, you’re probably better off seeking to use your time to do work you like. Stick your money in an index fund and concentrate your attention on what matters to you. Oh, that’s right, that’s what Buffett suggests for average investors too.

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