It's hard to come up with a more impressive investor than Warren Buffett (or a more impressive person, period). Check out his record: Shares of his company, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), increased in value by more than 2.7 million percent between 1965 and 2019. That's a compounded annual gain of 20.3%. If that sounds impressive, it is -- the S&P 500 gained only 19,784% over that period, or 10% annually.
Naturally then, you might want to invest just like Warren Buffett, in order to achieve great wealth like him. (He was the wealthiest man in the world for many years, but has slipped in rank in recent years, partly due to his having given away many billions of dollars.) Unfortunately, though, you shouldn't invest like Warren Buffett -- because you probably can't.
Here are five reasons why, along with some good news: You can do what he suggests instead, and grow wealthier over time.
Reason No. 1: You can't buy entire companies
You might think of Buffett as a stock investor, but he has actually been at the helm of a major conglomerate for decades -- which grew huge largely because he bought many companies in their entirety over time. Berkshire Hathaway's subsidiaries include many names you may recognize: Benjamin Moore, Brooks, International Dairy Queen, Johns Manville, Justin Brands, McLane, Business Wire, Clayton Homes, Forest River, Fruit of the Loom, GEICO, Nebraska Furniture Mart, NetJets, Pampered Chef, See's Candies, Shaw Industries, and the entire BNSF railroad.
Buying entire companies has worked well for Buffett, but you're probably not in a position to do so yourself.
Reason No. 2: You didn't grow up in his world
Next, you didn't grow up where and when Buffett did, and you probably didn't start making your fortune as early as he did. He was born in Omaha, Nebraska, in 1930, and was already making money by selling gum at the age of five and selling scavenged golf balls soon after. As a teenager, he delivered so many newspapers that he was earning more than his teachers. His wealth is not inherited, but hard-won.
When he started investing in stocks, the investment arena was very different than it is today. Information was harder to come by, as you often had to do your own digging to sift through companies to find promising ones. There was no internet, and no easy way to screen for stocks with certain characteristics. Fewer people were investing, too. These days, it's arguably harder to find mispriced stocks, as so many people (and automated systems) are looking for them.
Reason No. 3: You don't have his temperament or mind
Next, there's a good chance that you don't have Buffett's temperament and rational mind to keep you from making common mistakes, such as investing in things you don't sufficiently understand or panicking and selling if the market tanks. Buffett has often referred to his "circle of competence," and how he avoids going outside it when investing. He has also noted that he is content to do nothing for long periods, waiting for fat pitches.
Here he is offering a few words about what a good investor needs: "You should have a knowledge of how business operates and the language of business [accounting], some enthusiasm for the subject, and qualities of temperament, which may be more important than IQ points. These will enable you to think independently and to avoid various forms of mass hysteria that infect the investment markets from time to time."
Reason No. 4: You don't read as much as he does
You also probably don't, can't, or won't read as much as Buffett does -- and all that soaking up of information is a key contributor to his investment results. In an interview, Buffett explained his love of reading:
I read and read and read. I probably read five to six hours a day. I don't read as fast now as when I was younger. But I read five daily newspapers. I read a fair number of magazines. I read 10-Ks. I read annual reports. I read a lot of other things, too. I've always enjoyed reading. I love reading biographies, for example.
Buffett recommends lots of reading regularly. In another instance, he pointed to a stack of books and said, "Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it."
Reason No. 5: You don't have to invest like him
Finally, you shouldn't invest like Warren Buffett not only because you can't, but also because you don't have to in order to build wealth. Instead, you can just opt for low-fee, broad-market index funds, which he has recommended for the masses for many years. "Consistently buy an S&P 500 low-cost index fund," he said in one interview. "I think it's the thing that makes the most sense practically all of the time."
He puts his money where his mouth is, too, explaining that in his will, he offers these instructions for the money left for his wife: "Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)"
Alternatively, or in addition to index funds, you can let Buffett and his investing lieutenants invest some of your money by owning shares of Berkshire Hathaway.
Few, if any, of us can or should invest like Warren Buffett -- but, fortunately, we don't need to.