Posts Tagged ‘Warren Buffet

05
Apr
12

You are not Buffet

What’s interesting around the interwebz and personal finance blüg-o-sphere are the individuals who think they can beat the market.  While not impossible to do so, we can’t help but ask ourselves, is this from luck? or is this because of skill?

Many point to the “Oracle of Omaha” as the poster child of being able to analyze a company, pick the winners and reap the benefits with your feet kicked up as the cabana girl/pool boy bring you fruity drinks with those little umbrellas.  But another question we would like to delve into is, “Is how Warren Buffet invests the same way we invest?”

We (the working stiffs of the world) are retail investors.  We pay a premium to invest.  And when we do invest, we are given the scraps and leftovers that those higher in the pecking order have left us.  No one calls us about investing in oil wells in North Dakota, no one calls us with great business deals needing capital without the opportunities first being picked over.

When we buy a security, we don’t get invited to the board meetings.  We don’t get a say in what the company does, when it does something or how it does something.  We pay a premium for the privilege of investing in a company and we are asked to stand on the street with all the other working stiffs.

When debt becomes due, we may be the first to line up to get paid.  But we are quickly shuffled to the back of the line.

When Warren Buffet invests in a company, he is usually issued preferred shares of a company, often times reaping unheard of dividends.  He is invited to the board meetings and very much has a say in how business is conducted.  This contrasts from how we working stiffs get to invest.  So, on that level, it’s not fair to think Warren Buffet is the poster child of all retail investors.

This is not to say where Buffet is today wasn’t from the bottom and without hard work.  He certainly wasn’t fed with a silver spoon and truly started by delivering newspapers.  And maybe that is why so many people aspire to be like him, where he came from is the same as the majority of us and we desire to be known as an Oracle.  And surely, someone will eventually rise to his level if they haven’t already.  And some will pick some winners and profit handsomely.  But, we shouldn’t be fooled into thinking we can follow in their footsteps.  More than likely, a stock picker’s success is in luck, although they may think it is skill.  And if it truly is skill, why would you tell everyone about it, as that will most likely ruin your success?

In conclusion, we’ll leave you with Warren Buffet’s own advice to the working stiff, retail investor like ourselves.  In Berkshire Hathaway’s 1996 annual report, the following was said in the Chairman’s Letter:

Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.