3 ways to invest like Warren Buffett

berkshire-hathaway

http://www.cnbc.com/2017/02/26/3-ways-to-invest-like-warren-buffett.html

A cottage industry of asset managers, financial advisors and investment can give you their takes on how to be just like Warren Buffett.

You can skip the circus of wannabes and hear from the Oracle of Omaha directly in his annual letter to Berkshire Hathaway shareholders, which was published Saturday.

In his most recent letter, Buffett praised the virtues of index funds,railed against the steep fees hedge fund managers charge and said “investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

You don’t have to be a stock-picking whiz to benefit from his success. Buffett has already detailed three ways to emulate him in your retirement portfolio.

The two-fund portfolio

Buffett outlined an investing strategy for ordinary investors in his 2013 annual shareholder letter:

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

You can buy U.S. Treasurys directly or invest in a low-cost government bond fund. (Vanguard’s short-term government bond index fundcharges 0.16 percent annually with a $3,000 minimum investment, or 0.07 percent for the exchange-traded fund version.)

Vanguard offers several S&P funds: a traditional mutual fund that charges 0.16 percent annually with a $3,000 minimum investment or one with a $10,000 minimum and a 0.05 percent annual fee.

You can also buy a Vanguard 500 ETF that has an expense ratio of 0.05 percent. If you want a rock-bottom price, iShares Core S&P 500 ETFcharges 0.04 percent. With ETFs, and unlike with mutual funds, you may have to pay commissions when you trade them.

“Warren Buffett’s investment strategy is a good one for investors and signals that he doesn’t believe that most people, including professionals, can beat the market long-term, so just be the market and buy low-cost index funds,” said Stephanie Genkin, a certified financial planner in Brooklyn.

Buffett put his money where his mouth is when it comes to indexing. He bet $1 million for charity that the Vanguard 500 Index Fund Admiral Shares would beat a basket of five hedge funds selected by Protégé Partners, a New York City asset management firm over 10 years starting in 2008.

The index fund has tripled the performance of the combined returns of five unnamed hedge funds as of the end of 2015. A likely Buffett victory will benefit Girls Inc. of Omaha while Protégé is playing for Ark, an international youth education charity based in the U.K.

Berkshire Hathaway stock

You can share in gains of one of the world’s greatest capital allocators by owning stock in Berkshire Hathaway directly.

Buffett’s holding company has beaten the total return of the S&P 500 over the past 10 years with an annualized return of 9.1 percent, compared to 7.3 percent for the index.

Berkshire stock has two share classes. The primary difference between the share classes is the price. Class A stock recently cost more than $255,000 per share while Class B is 1/1,500 of that sum, recently at $170 per share.

You can convert Class A stock into Baby Berkshire shares, but not the other way around. Class B shares, launched in 1996, also have slightly less voting rights.

Beyond the lower price, the big advantage of the Class B shares for investors is that they can give them to people without triggering thegift tax, which kicks in for gifts above $14,000 each year.

With any investment pool, the larger you get, the harder it is to produce outstanding results. Berkshire Hathaway is no different and Buffett addressed this issue in his shareholder letter:

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results. We won’t be satisfied with less.

The Warren Buffett way

For the adventurous (or foolish), you can try your hand at investing in stocks like the master of value investing himself.

You don’t have to go it alone. Plenty of stock screeners, such as those from the American Association of Individual Investors, Morningstar andValueWalk, strive to identify stocks of companies with positive free cash flows, good returns on capital and strong competitive advantages (what Buffett calls “moats” as in a castle with a moat). Automated investing service Motif lets you buy a basket of Buffett-like stocks for less than $10 per trade.

To be sure, it is extremely difficult to generate a record anything close to what Buffett has done just by stock-picking. Public companies represent only a part of Berkshire Hathaway’s portfolio holdings, while the rest come from private deals ordinary investors can’t access.

Where most investors lose their way in following in Buffett’s legendary footsteps is consistency. Even Buffett stumbles from time to time.

“The problem that most people would have investing like Buffett is the time frame. Many of his investments can take years to pan out, and the average investor doesn’t have that sort of patience,” said George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts.

“Remember the derogatory comments about Buffett during the Internet stock boom years? He went from a pariah in 1998 to a genius in 2003,” Gagliardi said.

The key to Buffett’s stock-picking success has been his ability to buy when others are fearful.

“Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie [Munger], not economists, not the media,” Buffett writes in his 2016 letter.

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”

———-

fairly generic..

“The key to Buffett’s stock-picking success has been his ability to buy when others are fearful.”

nothing nostradamic there..

“widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”

401

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~ by seeker401 on March 8, 2017.

13 Responses to “3 ways to invest like Warren Buffett”

  1. invest in AI companies – we’re all stuffed

  2. Reblogged this on World Peace Forum.

  3. weed stocks are dddddown

    invest in urine brews.. ya can’t make this sheet up. first they are asked us to eat turd burgers..& now

    ===

    If it had tasted even a bit like urine, I would put it down, but you don’t even notice.’

    http://www.ibtimes.co.uk/danish-brewery-produces-pisner-beer-using-recycled-human-urine-1620227

    An exotic new lager beer – brewed with the help of 50,000 litres of human urine – has been launched by an ambitious microbrewery in Copenhagen, Denmark.

    The bottled pilsner, or “Pisner”, to give it its official name, contains fermented malting barley that was fertilized with urine collected from festivalgoers at Denmark’s largest music festival.

    The waste was collected from special urinals at Roskilde Music Festival in 2015, when headliners included Paul McCartney and Kendrick Lamar.

    Around 60,000 bottles of the limited edition beer will be sold around Denmark, according to Reuters.

    The final product does not contain any urine itself.

    “When the news that we had started brewing the Pisner came out, a lot of people thought we were filtering the urine to put it directly in the beer.

    “We had a good laugh about that,” said Henrik Vang, chief executive of brewery Norrebro Bryghus.

    In fact, tasters reported a light and refreshing experience when trialling the lager.

    “If it had tasted even a bit like urine, I would put it down, but you don’t even notice,” Anders Sjogren, who attended Roskilde in 2015, told Reuters.

    Norrebro Bryghus was founded in 2003 inspired by the craft brewing revival in North America and other parts of Europe. It has produced more than 200 beers from its brewery-cum-café in the heart of Copenhagen.

  4. weed bubble brewing here in cali now that it’s legal. investors are looking for anyone who knows how to grow, offering up to $2million at five years with zero interest to setup pro grows in exchange for 20% of the crop. ive actually heard ppl say the market is going to grow 10x. there arent going to be that many new smokers. far more likely that supply grows 10x and not demand.

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