Can you really invest like Warren Buffett?



John Wasik

Published — Wednesday 19 December 2012

Last update 18 December 2012 10:44 pm

| نسخة PDF Print News | A A

CHICAGO: For as long as I can remember, the investment maxim that most evokes a mix of adulation and performance anxiety is “Invest like Warren Buffett.”
How can mere mortals emulate an investing deity? In truth, most of us will never come close to “the Sage of Omaha.” He’s done all the things a stellar investor should do: He buys when there’s blood in the street, finds solid companies at great prices and keeps them “forever.” Lacking Buffett’s phenomenal verve and mettle, though, most of us won’t do this. But that doesn’t mean we’re doomed to failure.
Fortunately, the multibillionaire chairman and chief executive of Berkshire Hathaway Inc. has been generous with his wisdom and two recent books published in November compile and analyze it elegantly: “Tap Dancing to Work” by Carol Loomis, a long-time Fortune writer and Buffett friend and “Think, Act and Invest Like Warren Buffet” by Larry Swedroe, principal and director of research for Buckingham Asset Management, LLC.

What key advice resonates most?

1. Stick with index funds
Although you probably won’t get the returns of Berkshire Hathaway with index funds, you can still get pretty close to market returns without having to be an oracle yourself.
“If individuals “aren’t going to be an active investor — and very few should try to do that — then they should just stay with index funds. Any low-cost index fund,” Loomis quotes Buffett as advising. “And they should buy it over time. They’re not going to pick the right place and time.”

2. Don’t play Buffett’s game
Although Buffett is often able to time his purchases brilliantly, chances are, you won’t. In fact, research shows that most individual investors’ records on timing the market successfully are dismal.
One of the most important Buffett shibboleths is acknowledging that you won’t be able to predict the market. If you take his advice on index funds and stay the course, “the only way an investor can get killed is by high fees or by trying to outsmart the market,” he said in 2008.
No big secret here. When you find good stocks, buy them at low prices and hold them. For those buying individual stocks, this means dollar-cost averaging — fixed investments every month — and reinvesting the dividends. Most large companies offer dividend reinvestment plans for this purpose.
Swedroe reinforces Buffett’s advice by citing academic studies that actively managed mutual funds show “no evidence of the ability to persistently generate outperformance beyond what would be randomly expected.” So a passive strategy can work for most investors.
Most individuals also get scorched on transactions and trading costs. You can inexpensively own most of the stock and bond market through two funds: The Vanguard Total Stock Market Index ETF and the Vanguard Total Bond Market Index fund. The company charges you 0.06 percent and 0.22 percent annually, respectively, for managing those funds.

3. Think long term
Buy durable enterprises that will produce profits for decades, not quarters. Buffett has bought into enterprises like BNSF Railway Co. and Coca-Cola that have been around for a long time and are not going away. They have good prospects not because of recent “rear-view” quarterly earnings reports. When Buffett says he’s buying “businesses,” he’s committed to managements that generate cash, profits and dividends decades into the future.

4. Keep your cool and be a contrarian
Booms and busts don’t seem to phase Buffett, who will hold onto his cash when most are buying and open his wallet when the market crashes. He’s not distracted by television blowhards or prevailing sentiment — emotions that can derail even the smartest and investors. He knows how to seize opportunities when most investors are seized by fear.
When Goldman Sachs called him to take a stake in the company at the height of the 2008 meltdown, Buffett got some incredible terms on his $ 5 billion investment: A 10 percent annual dividend and repayment that eventually netted him $ 1.7 billion when Goldman paid him off early last year.
Who do you know can demand and receive a legitimate 10 percent dividend these days?

— The author is a Reuters columnist and
the opinions expressed are his own.

What's happening around Saudi Arabia

JEDDAH: A Mercedes car with a Saudi number plate was spotted in Israel. The discovery led to intense discussion on social media websites on Tuesday.According to reports, the car was spotted last week in Jaffa’s Clock Tower Square by Jacky Hugi, the M...
RIYADH: The Kingdom is experiencing extremely hot weather conditions.According to a report from the Presidency of Meteorology and Environment (PME), Central Province, Jeddah, Makkah and Madinah, experienced “extremely hot weather with surface winds a...
ALKHOBAR: Many Saudi citizens travel outside the Kingdom during vacations looking for entertainment for themselves and their families as entertainment facilities in the Kingdom do not meet their aspirations. They have called for setting up entertainm...
TAIF: Makkah Gov. Prince Khaled Al-Faisal inaugurated state-of-the-art Radf public park in Taif which has an interactive fountain — the biggest of its kind in the Kingdom and spread over 13,000 sq meters. The fountain has colored lighting and a displ...
JEDDAH: The Special Criminal Court has issued a preliminary order in a case related to a Saudi national who fought with militant organizations in Syria. The court, functioning at its summer headquarters in Jeddah, sentenced him to a seven-year jail t...
RI YADH: The Kingdom has decided to increase the financial aid to Palestine by raising its monthly aid to the Palestinian Authority’s budget from $14 million to $20 million. The substantial increase brings Saudi Arabia’s yearly aid for Palestine to $...
JEDDAH: The Saudi Ambassador to Jordan has rejected terror charges against Saudis incarcerated in Iraqi jails and slammed the government of that country for concealing information on the inmates."The file of Saudi prisoners in Iraq has grabbed the at...
JEDDAH: Six female members of the Shoura Council participated in a training program to raise awareness among citizens on the municipal elections in which women will participate. The program was organized by Al-Nahda Philanthropic Society for Women un...
RIYADH: Custodian of the Two Holy Mosques King Salman has issued an order appointing and promoting 96 members at the Bureau of Investigation and Public Prosecution (BIPP) at various ranks.Sheikh Mohammed bin Fahd Al Abdullah, BIPP president, expresse...
DAMMAM: After the recent increase in verbal and physical harassment of women and girls in the Kingdom, they have turned to martial arts in order to protect themselves. Amani Yassin, a coach at Taekwondo Training Institute, said: “Saudi women are inte...
RIYADH: A youth has been arrested for allegedly killing a Saudi man near the Madinah airport recently. The police apprehended the alleged killer without incident. The suspect, a 24-year-old Saudi, is alleged to have stabbed the victim several times...
RIYADH: A total of 4,326 male and female students started their local and regional summer program for 2015 under the sponsorship of the King Abdul Aziz and his Companions Foundation for the Gifted and Creativity (Mawhiba) throughout the Kingdom on Su...
BURAIDAH: The security patrolling team in Qassim detained a woman for driving a car on the streets of Buraidah.Her case was referred to the higher-ups for necessary action.According to Maj. Badar Al-Sahibani, spokesman Qassim police, the woman is ide...
RIYADH: Recent statistics announced by the Saudi Commission for Health Specialties, which coincided with consensus surveys in the Kingdom for the year 2014, revealed that there is only one doctor for each 800 people, and one nurse for every 285 peopl...
Indian expats have paid glowing tributes to one of its most beloved presidents and iconic leaders on Tuesday, as condolences poured in from various parts of the Kingdom for A.P.J. Abdul Kalam following his sudden death on Monday.Hemant Kotalwar, char...

Stay Connected

Facebook