Warren Buffett, the CEO of Berkshire Hathaway (BRK.A -0.45%) (BRK.B -0.63%), started investing when he was 11 years old in 1941. And since then, he has become one of the greatest investors of all time.
Whether you're a fan of Buffett or not, chances are you have different investors that you look up to. Adults and children are similar in that we both try and emulate our role models in the hopes of becoming more like them.
C.S. Lewis put it well when he wrote that "very often the only way to get a quality, in reality, is to start behaving as if you had it already. That is why children's games are so important. They are always pretending to be grown-ups -- playing soldiers, playing shop. But all the time, they are hardening their muscles and sharpening their wits so that the pretense of being grown-up helps them grow up in earnest."
Folks who are trying to invest like Warren Buffett stand to benefit from developing three essential qualities. Here's what they are and why they matter.
1. You don't mind being wrong or feeling left out
Fear of missing out (FOMO) is a powerful emotion that can be the ruin of retail investors and money managers alike. Over the last two years, we've seen the valuations of meme stocks and hypergrowth companies rise and fall. Value stocks go from out of favor to in favor. Oil stocks go from untouchable to the hottest thing in town. The list goes on.
Buffett is probably one of the most anti-FOMO investors on the planet. Instead of getting caught in the crowd, he dutifully sticks to his value investing bent -- and all of the criticism that comes with that. It can be hard to stick to your conviction when other, more reckless strategies are beating your performance, and the market for that matter.
For example, Buffett probably wasn't very happy being up 11% in 2019 compared to 31.5% for the S&P 500. Or being up just 2.4% in 2020 compared to 18.4% in the S&P 500 and 400%-plus annual gains in stocks like Peloton Interactive probably didn't do much for him. But to his credit, Buffett and his team didn't fall victim to FOMO and simply stuck to their process by investing on their terms.
Since Jan. 1, 2021, Berkshire Hathaway stock is up over 50% while Peloton has lost 80% of its value -- completely erasing all of its 2020 gains. By not giving in to animal spirits, Buffett is able to let his long-term strategy play out and avoid chasing speculative investments.
2. Work hard
Buffett is famous for pouring over tomes of books, publications, and newspapers in his quest to find value. An avid reader and a hard worker, Buffett is 91 years old and still running Berkshire Hathaway. His right-hand man and lifelong friend, Charlie Munger, is 98 years old. This isn't to say that you must work your tail off studying companies or work into your 90s to become as successful as Buffett. But it does illustrate that Buffett loves what he does.
If following companies, listening to earnings calls, reading articles, and doing your own research isn't enjoyable for you, it may be best to simply buy an index fund and let the broader stock market gains compound over time. But if you're willing to put in the work, investing in individual stocks over time has the potential to produce market-beating gains.
3. Have patience and discipline
The greatest investors aren't the ones who pick the best stocks but rather are the ones who pick pretty good stocks and have the patience to stick with them over time. None of Buffett's holdings are extraordinary. They are all quite ordinary.
Berkshire Hathaway's top 10 holdings, in order, are:
- Bank of America
- American Express
- Kraft Heinz
- US Bancorp
- Verizon Communications
- Occidental Petroleum
Every single one of those companies is one of the biggest players in its respective industry -- far from a hidden gem. What makes Buffett a great investor is his patience and discipline to double down on a company he believes in or sell a company he doesn't believe in.
Buffett makes mistakes all the time. Some of his more notable ones include never buying Walmart, selling Walt Disney way too soon, and selling airline stocks near their 2020 lows. But more often than not, he's right. And he sticks to his best ideas too, as evidenced by acquiring more and more shares of Apple stock over the years as well as buying back Berkshire Hathaway stock.
Keep it simple
Hopefully, you're relieved to discover that the qualities you need to invest more like Buffett aren't superhuman intelligence, a knack for numbers, or an MBA, but rather the willingness to learn, to be patient, to stick to your process, and to let time work in your favor.