How To Beat Warren Buffett At His Own Game
When I’m introduced to new people and they learn that I’m in the financial publishing business, it’s always interesting to see what their follow-up question or comment will be.
Some ask me for a stock tip or want my take on the latest fad in the market. Others, assuming they’re interested, like to talk about Warren Buffett.
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I’m always glad when people want to talk about Buffett — especially novice investors. It’s a sign of wisdom to be sure.
It’s easy to like Buffett. You may not like his politics, you may think the annual shareholder meeting has turned into a circus, but I tend to think anybody who badmouths Buffett himself is probably just being a curmudgeon.
#-ad_banner-#Just like your grandpa who might have sat you on his knee when you were little and told you stories about World War II, you get the same sense of folksiness and accessibility from Buffett. The only difference being that this grandpa is telling you about the stock market and is worth nearly $80 billion.
He’s not perfect — but then again, he’s also rarely wrong. By studying Buffett’s career, you can learn not only about what makes a great investor — but also gain a heap of business and common sense.
Buffett Is Still Going Strong, And We Still Have Much To Learn
Take, for example, when Buffett discusses the performance of various units of his business empire in his shareholder letters.
It is well known that Buffett’s underlings are not only excellent at their jobs, but also fiercely loyal. You’ll find that when things are going well, he showers effusive praise on his managers, calling them “geniuses,” or saying “we couldn’t be where we are” without so and so. But when things are not up to par, he rarely names names. In many cases, Buffett blames himself instead.
And that my friends, is how you build an empire.
Buffett is 87 years old now, and we’re much closer to the end of his storied career than the beginning.
Does this mean Buffett has lost a step? Hardly.
The One Edge You Have Over Buffett
But he has one distinct disadvantage that you and I do not: Buffett can only invest in large companies because he has to make large investments in order to move the needle on his portfolio. Otherwise, it would simply have no effect on his returns.
Therein lies the rub. The fact of the matter is that Buffett is also no longer able to respond quickly to the market like he used to. If the market or a specific stock tanks, it’s now that much harder for Buffett to dump his position and avoid losses (or, conversely, get in at the right time at the bottom). You can’t simply pour and empty millions (or billions) into and out of a stock in a matter of a day or so.
That means, for Buffett, creating outsized returns is harder now than ever before.
But, alas, you and I don’t have to worry about this. So that’s our one advantage we have over him: timing. If you can follow his advice of buying fantastic companies at reasonable prices, and exercise good timing (it doesn’t have to be perfect), then you stand a reasonable chance of beating the returns of the Oracle of Omaha over the next five years.
One Of The World’s Greatest Businesses Is Now A ‘Buy’
Note the phrasing I just used… “fantastic companies at reasonable prices.”
To say that Buffett is a “value” investor is a bit misleading. The sort of “cigar butt” investing espoused by Benjamin Graham, the father of value investing, hasn’t been a part of Buffett’s strategy for decades.
Instead, thanks in part to Charlie Munger, Buffett’s business partner, Buffett’s overriding philosophy is to find wonderful businesses at reasonable prices. That’s what led Buffett to make investments in names like Coca-Cola, American Express, Wal-Mart and many others. As you know, this has worked out incredibly well.
It’s this approach that also led Jimmy Butts to his most recent recommendation in his premium newsletter, Top Stock Advisor.
This month’s pick — Starbucks (Nasdaq: SBUX) — is undoubtedly among the world’s greatest businesses. It’s been a favorite among StreetAuthority analysts over the years. We’ve booked gains of 47%, 84% and 127% each time we’ve held it in one of our various portfolios… and Jimmy and his subscribers are looking for similar gains (and more) this time around.
We don’t usually give away Jimmy’s Top Stock Advisor picks here in StreetAuthority Daily. But after reading Jimmy’s analysis, I think you’ll see exactly why we chose to do just that.
The fact of the matter is that when you see one of the world’s greatest businesses (like Starbucks) trading for an extremely reasonable price, you buy it.
In tomorrow’s issue, we’ll hand things over to Jimmy and let him tell you more about his pick. But first, just know that this is just one of the many picks like it that Jimmy holds in Top Stock Advisor. With companies owning some of the best assets and businesses in the world, and having bought them at a fair price, it’s no wonder Jimmy and his followers are sitting on some of the best gains you’ll find in a portfolio.
(If you’d like to gain full access to Top Stock Advisor, go here.)