Can Investors Replicate Warren Buffett’s Success?

As far back as I can remember, the main investment maxim that often promotes performance anxiety and adulation is “invest like Warren Buffett.”

How can regular people emulate such a master investor? The truth is, that most people will never even come close to “the Sage of Omaha.”

He’s done everything that an excellent investors should. He buys when everybody else is afraid, he finds excellent companies when the prices are very low, and then he holds onto them forever.

Since most people lack the mettle and verve of Warren Buffett, so most people will not be able to do this. But that doesn’t mean that average investors are doomed to fail.

The best thing for everyone is that the multibillion dollar CEO and chairman of Berkshire Hathaway has always been generous with the wisdom that he shares.

Recently, there were two books in November that compile and analyze the words of Warren Buffett. We have “Tap Dancing to Work” by Carol Loomis, a longtime writer of Fortune magazine and friend of Warren Buffett. And then there is “Think, Act and Invest like Warren Buffett” by Larry Swedroe, who is the director of research for Buckingham Asset Management.

Which key pieces of advice resonates most?

  • Stick with index funds

Even though you probably won’t receive the same returns that Berkshire Hathaway achieves with index funds, you can get very close market returns without having to be a genius investor like Warren Buffett.

“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 tells us that Warren Buffett advised. “And they should buy it over time. They’re not going to pick the right place and time.”

  • Don’t play the Warren Buffett game

Even though Warren Buffett is usually able to time his purchases supremely superbly, the chances are that you won’t be able to do so. As a matter of fact, research tells us that most individual investors as far as success in timing go are dismal.

One of the most important things that Warren Buffett teaches us is to recognize that you aren’t going to be able to predict the market.

If you follow his advice about investing in index funds, and stick with the plan, “the only way an investor can get killed is by high fees or by trying to outsmart the market,” he told us in 2008.

This is really no big secret. When you discover a good stock, you should buy it at a low price and hold onto it. If you are buying individual stocks this way, this is called dollar cost averaging – we have fixed investments every month and you reinvest all the dividends. Most big companies provide reinvestment plans for dividends for this exact purpose.

Larry Swedroe reinforces the advice of Warren Buffett by sharing academic studies that actively managed mutual funds show “no evidence of the ability to persistently generate outperformance by what would be randomly expected.” So, for most investors, a passive strategy will certainly work.

Most investors also take a hit on trading costs and transaction fees.

If you want to own the majority of the stock and bond market the most inexpensively, then do so through two funds: the Vanguard Total Stock Market Index ETF and the Vanguard Total Bond Market Index Fund.

The company only charges you 0.06 PC and 0.22 PC per annum, to manage the funds.

  • Think long-term

When you buy stocks, by shares of companies that will produce profits for many years to come, not short-term bets.

Warren Buffett typically buys into companies that have been around for a really long time, like Coca-Cola and Burlington Northern Santa Fe Railway. They obviously aren’t going anywhere, so you know they’ll be producing income for many years.

Warren Buffett likes to buy businesses where he trusts and likes the management, they are capable of generating cash, they earned good profits and provide many dividends for decades into the future.

  • Keep your cool and be a contrarian

Stock market booms and busts do not even phase Warren Buffett at all, and he’ll hold onto all of his cash while other people are buying, and then he’ll begin buying things in droves when stock markets and other markets crash.

He doesn’t pay attention to the media or other people’s opinions – he doesn’t let emotions derail his investments or his line of thinking. He’s great at seizing opportunities when other investors are paralyzed by fear.

Goldman Sachs called upon Warren Buffett take a stake in their company during the financial meltdown during 2008. He received incredible terms on his $5 billion investment in the company. A 10 PC annual dividend and repayment that eventually made him $1.7 billion when Goldman Sachs paid it off earlier last year.

Do you know anybody that can receive a legitimate 10 PC dividend these days?

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