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Wednesday, January 26, 2011

Want to be Warren Buffett But Too Lazy?

Not that many years ago, it seemed that every kid on the basketball court wanted to be Michael Jordan. They worked hard, in their imagination, at recreating his game-winning shots. But, as many basketball coaches/motivators were fond of pointing out, not one-in-a million were willing to do what it takes to be a Michael Jordan. His work ethic in the weight room and at practices was legendary. At practice, he insisted that the best defender on the team (Scottie Pippen) be on the side that he was scrimmaging against. He always wanted to go against the best.

Security Analysis, Sixth Edition (Leatherbound Edition)
In the same way in the investment field, there are many who want to be the next Warren Buffett. But how many are willing to do what it takes to be a Warren Buffett? Buffett talked his way into Columbia Business School to study under the legendary Benjamin Graham. Classmates said he knew Graham and Dodd's "Security Analysis" classic better than the authors did. Question:  How many are willing to do what it takes to be Warren Buffett? How many of you know the text better than the authors?

Since I don't see any hands up, consider an easier approach - sort of the video game version, I guess, of recreating a Michael Jordan game winner.

Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds that OutperformAccording to Russel Kinnel, Morningstar's Director of Mutual Fund Research, as listed on page 59 in "FundSpy," the following funds  are "Buffet followers:"  the Sequoia fund (SEQUX), Fairholme Fund (FAIRX), Dreyfus Appreciation(DGAGX), Oakmark (OAKMX). Returns over the past 5 years on these funds have ranged from 3.36% to 9.08%. Interestingly, the fund with the highest turnover (71%) (I know...don't ask me how a "Buffett follower" would have a 71% turnover rate)  had the highest return.

Kinnel points out that, as many do, you can always buy Berkshire Hathaway shares.

All of this is out of my "there is more than one way to skin a cat" file. I am a proponent of low-cost index funds as the way to invest for DIY investors for at least 80% of their  retirement funds. The easiest thing in the world is to pick out past winners. As a point of fact, Buffett himself has said,
"Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."
Disclosure:  I hold none of the funds mentioned here and do not endorse or recommend them. The information is solely for educational purposes. Individuals should do their own research or consult an advisor before making investment decisions.


  1. I'll be content to own Berkshire directly plus index funds. I think Berkowitz at Fairholme is a truly talented money manager, but he is starting to suffer from asset bloat.

  2. @Grouch I agree that's the way to go. Many funds have had difficulty as assets have grown.

  3. Very nice post Robert! I posted a similar article (honestly, that was in jest!) "If I had to bet all my savings on one stock, I would bet on this one!"
    right after brk.b split and became more affordable.

  4. @MoneyCone Thanks for the comment. I have to say that thinking about investing in one stock makes me cringe. A few years back I was daydreaming one day and thought to myself that putting it all into GE might make sense given their diversification, dividend at the time, wide institution holdings etc. Then Immelt pulled a fast one on the Street - told analysts they were doing fine just a few days before they came out with surprisingly bad numbers.

  5. Moneycone wasn't being serious when stating that Berkshire Hathaway stock is cheaper now that it has split, but because Robert has many readers who might not understand the jest, I thought I'd add my bit....

    Berkshire at $4000 per share was the same price as Berkshire today, at $80. The lower stock price (after the split) allows people to get in with smaller sums, but the price itself isn't cheaper.

    One $10 bill is the same price as ten $1 bills.

  6. @Andrew Good clarification. At one point people thought stock splits led to exceptional performance but studies disproved this. Evidence is a hard master@

  7. I might be the first to say this: I do not want to be like buffet. I want to be me, successful (relative to my scale of success) because I opened my own path and reached my own objectives. I think it's more rewarding that just emulating another person.

  8. @Mich Well said and highly admired. Your own path is always the best path in investing as well as other parts of life.

  9. Nice article. Thanks. I have been researching buffetisms for my own blog and truly believe that anyone with common sense can invest on their own through sleepy portfolios with index funds such as low MER ETF's and beat the majority of mutual fund managers. With all of the noise out there, clarity seems to always shine through when simply tuning in to the indexes.....thanks.