MoneyCone has written a must read analysis, "Following Buffett Blindly Can Be Injurious to Your Wealth," from the perspective of the investor who might consider jumping on the coattails of some of his deals. Be sure to note the very apt art on the article showing a pack of "SMOKEME" cigarettes.
It is not easy for me to write objectively about Buffett's latest deal, Bank of America, because formerly I was a managing director at an investment subsidiary of theirs and saw first hand and experienced how they operate. I have to say that I just don't understand why someone of Buffett's stature would deal with them (or Goldman Sachs for that matter) even with the outrageous terms he obtains. I, for one, would grab my wallet and be sure to never let the likes of Hugh McColl or Ken Lewis get behind me. Dealing with their top management reminds me of Indiana Jones in the snake pit.
Many times I like to start a presentation by quoting Buffett to the effect that most investors are better off investing in low-cost index funds. This is met with the question of why would Buffett recommend this when he invests in individual stocks? The answer I jokingly give is that, if the questioner looks in the mirror and sees Buffett looking back, he can forget the recommendation to use index funds. The more serious answer is that Buffett doesn't invest in individual stocks like most investors. Even from the beginning, he visited companies and jumped right into their finances. This morphed into an approach where he controlled companies and literally replaced the dead wood. Today his stature enables him to rescue or semi-rescue firms by providing capital at terms that make even seasoned investors gasp.
The investment markets attract many people who are looking for an easy way to get rich. Naturally the thought crosses their mind to follow the likes of Buffett. In fact, there are generally a couple of shelves of books in most bookstore business sections devoted to Buffett's investment approach. After al,l how can you go wrong following a man with the performance record of Warren Buffett?
MoneyCone answers this question with the numbers. His article is worth reading more than once by every DIY investor.
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