Yes, You Can Still Invest Like Warren Buffett

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Say that you want to invest like Warren Buffett and naysayers will line up to tell you that you can't. To a large extent, they're right.

Buffett's folksy easy-as-pie investing image doesn't quite jibe with the usurious deals he's wrung from the likes of General ElectricGoldman Sachs. Any average Joe investor can buy stock in GE or Goldman, but only Buffett, with his worth-its-weight-in-gold reputation and the massive Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  ) balance sheet can deal for a double-digit preferred dividend from a financial firm known for ripping its clients' faces off (so to say, of course).

The recent "partner" deal to buy H.J. Heinz is no different. While 3G Capital is ponying up $4 billion for common equity in the deal, Buffett and his investors at Berkshire are getting a 9% yield on the $8 billion in preferred that he negotiated. 

Try as you might, you can't invest like that. The best you can do to get those kinds of deals is just invest with Buffett by owning Berkshire.

But while those deals are hardly chump change, they're still dwarfed by the massive, long-term positions that Buffett maintains in his favorite common stocks. Berkshire has a near-$16 billion position in Wells Fargo  (NYSE: WFC  ) . Another $30 billion is split roughly evenly between Coca-Cola  (NYSE: KO  ) and IBM  (NYSE: IBM  ) . And there's a further $10 billion in American Express.

While these investments may not get the same media shake as the preferred deals or the up-and-coming positions from the two Buffett proteges, it's these holdings that best highlight how retail investors can, in fact, still invest like Buffett.

Be warned, though: This works, but it isn't particularly exciting.

Invest long term
Coca-Cola first showed up in Buffett's annual shareholder letter in 1988. At the time, he wrote:

We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.

And hold he has. The holding period for Coke is now closing in on three decades. And those three decades have treated Berkshire well.

KO Total Return Price Chart

KO Total Return Price data by YCharts.

Can you still invest like Buffett? Sure, find great companies, buy them, and hold on for a long, long time.

Quality and well-managed trumps cheap
Buffett is widely known as a "value" investor. To many, this is interpreted as buying the cheapest stocks possible. Buffett is explicitly against that notion.

When Wells Fargo popped up in Berkshire's 1990 shareholder letter, Buffett had this to say:

...we have no interest in purchasing shares of a poorly managed bank at a "cheap" price. Instead, our only interest is in buying into well-managed banks at fair prices.

With the banking sector melting down in 1990, there were plenty of cheap banks. But Wells Fargo was well run and had a conservative culture. Both endured and led to the giant bank skating through the more recent financial crisis while others... well, didn't.

Like Coke, the Wells Fargo investment has treated Berkshire quite well.

WFC Total Return Price Chart

WFC Total Return Price data by YCharts.

Can you still invest like Buffett? Sure. Skip the fancy stuff. Buy great companies that are well managed and built for the long run.

Be intellectually flexible
One of the investing world's biggest shocks of 2011 was Warren Buffett sinking $10 billion into IBM. Even as pundit jaws banged on the floor, Buffett revealed that it was a company whose annual report had literally been part of his reading list for five decades. As he put it:

I have been reading [IBM's] annual report for more than 50 years, but it wasn't until a Saturday in March last year that my thinking crystallized. As Thoreau said, "It's not what you look at that matters, it's what you see."

The investment was such a surprise to everyone not named Warren Buffett because "Buffett doesn't do technology." Buffett has hinted in that direction ("we just stick with what we understand"), but the fact that he's been reading IBM's annual report for 50 years suggests that he keeps an open mind about what he's willing to invest in.

Can you still invest like Buffett? Sure. Read a lot, don't invest in what you don't understand, but keep an open mind. And if something does click -- even if it's a company that was previously in the "too hard" pile -- be willing to reconsider.

So... can you?
You're not going to get double-digit, preferred-stock deals from Goldman Sachs. Nor are you going to find yourself on the right end of a savvily negotiated buyout that gives you a "heads I win, tails you lose" outcome. It's also highly unlikely that you're investing free money via insurance-company float (another big Berkshire benefit). 

So you can't do everything Buffett does. 

But you can find great companies. You can look for conservative, shareholder-friendly management teams. And you can buy those companies and sit on them for decades. Sound easy? It's not. But it's definitely possible.

Or just buy Berkshire
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On March 07, 2013, at 3:19 PM, BDF958 wrote:

    No, you really can't. And believing that you can reading these sully things is a systemic problem with investing, and our society. You would have better luck being yourself, and giving yourself a dose of tallent, integrity, Patience, etc.. and trying that, than to listen to the "be like Buffet" trumpets. and any service which frames things in that manner is doing you a disservice.

  • Report this Comment On March 07, 2013, at 3:26 PM, DavidWTaylor wrote:

    How the billionaires getting rich?

    The answer is in the statistics :

    Most of the billionaires ( 148 ) are from the investments . You just need to invest wisely ( buy low, sell high) at the right timing. As for the current market condition, I received buy signal back in last November by ** I Know First algorithmic system**

    Now we have plenty of signs that US economy is recovering,

    Just published today: First-time jobless claims unexpectedly fell by 7,000 to 340,000 in the week ended March 2, the lowest since the period ended Jan. 19, according to data today from the Labor Department in Washington. The median forecast of 50 economists surveyed by Bloomberg called for an increase to 355,000. The four-week average dropped to a five-year low.

    Orders for machinery and other factory goods that signal business investment surged in January, indicating confidence in the economy.

    The Commerce Department said Wednesday orders for so-called core capital goods, which also include computers, rose 7.2% from December. It was the biggest gain in more than a year and higher than the initial estimate the government made last week of a 6.3%.

  • Report this Comment On March 08, 2013, at 5:27 AM, csymonds wrote:

    does this mean that one can use their CEO's for inside trading and it's legal. some big investors like Warren Buffett are under international investigation for said deed.

  • Report this Comment On March 12, 2013, at 8:33 PM, andynutherthing wrote:

    Steve said...."I hate to own up to this, but my name's not Steve". Then broke down in tears. I was there.

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