On October 24th, 2012, CNBC interviewed Warren Buffett. Often, after a media event such as this, many sources begin to tout the long-termed investment philosophy of Mr. Buffett. Predictably, the buy & hold crowd were enthused after hearing from their favorite market maven espouse the virtues of long termed investing. I would like to address 3 reasons why people like you and me, and even most large institutions, are unlikely to duplicate Mr. Buffett’s investment success. By the way, I’ve written a more extensive article on this subject citing specific trades that Mr. Buffett has made over the years for the upcoming Moneyletter magazine. Should you be interested in reading more about this investment icon’s highly successful (yet near impossible to duplicate) style, be sure to read it.
Reason One – Buffett takes controlling interest or acts as a director of his main positions
- Warren Buffett tends to buy controlling interest with many of his holdings
- He often buys private placements that are not available to most of us.
- Most of us do not have the capital or the savvy to take a controlling interest in a public or unlisted company
Reason Two – Why make nothing for 10 years?
- Some stocks – and markets (such as the market we’ve been in for 12 years) go sideways for many years. Most investors, myself included, don’t have the patience to sit on something for 10 or more years before making money. Long term investing sounds good, until you live the reality of that dream.
- Despite the legend of his long termed holds, evidence shows that Warren Buffett is not the passive buy & hold exchange-listed stock holder that many investors seem to believe. He does have a sell discipline. And he has at times avoided buying on the market – stating this publically when he feels markets are overvalued.
- His strength is in buying assets of any kind at the lower end of their valuations, and realizing that value when the timing is right – not holding everything forever as some might believe.
Reason Three – You are not Warren Buffett
- Most of us don’t have the savvy, investment knowledge, and team of analysts that Mr. Buffett has.
- Nor do we have the resources, holdco structure and access to capital that he has.
- Lastly, most of us don’t have his immense patience. Let’s face it, we mere mortals think pretty myopically most of the time, even though we should know better. Heck, I get client calls if a stock trades flat or down for more than 6 months!
On this final note about patience in the market, the S&P continues to play with support of just over 1400 – as seen on the chart above. Seasonally, stock markets should begin to react positively soon, particularly after the election results are in. My thoughts are that this support will hold, and I am patiently waiting for the traditional winter rally to begin.