When Warren Buffett's company, Berkshire Hathaway (BRK.A 0.24%)(BRK.B 0.38%), reports its latest 13F filings, which show which stocks the company owns, some investors are often quick to buy the same stocks the billionaire's company did, hoping that it'll lead to a great return. After all, if the billionaire investor is bullish on a stock, why not jump on the bandwagon?
While there's no shortage of investors who are eager and willing to copy Buffett's stock moves, you might be disappointed if you do so. Here are three reasons why you don't want to copy Buffett.
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Key Data Points
1. Buffett's strategy may not align with yours
Buffett is a billionaire who isn't going to have the same needs as you are when it comes to investing. His priority may be to preserve capital and steadily grow Berkshire's portfolio. For some growth investors, the goal may be to aim for big returns, particularly if they don't have many investing years left and are approaching retirement. Other investors, however, may want to generate significant dividend income. Assuming that Buffett's approach aligns with your own strategy can lead to your adding stocks to your portfolio which may not be optimal for your needs.
Investors also shouldn't assume that every stock in Berkshire's portfolio will be a great investment. Consider Coca-Cola and Kraft Heinz, two top holdings which have been staples in Berkshire's portfolio for years. In five years, their total returns (including dividends) are less than 30%. During that stretch, the S&P 500's total returns are over 100%. Simply mirroring the index would have been a much better option for investors.
2. Buffett focuses on stocks within his circle of competence
One thing you'll notice about Berkshire's portfolio is that there aren't many tech stocks in there. While Apple may seem like the obvious exception to this, its business today follows that of a steadily growing consumer business more than it does a rapidly innovating tech company; it's generally not as fast growing, volatile, or risky as an average tech stock might be.
And outside of Apple, the positions Berkshire has in stocks involved in tech are fairly low. This is because Buffett believes in staying within your circle of competence and investing in businesses you're familiar with. He's a fan of bank stocks and insurance stocks, which provide investors with a lot of long-term stability and predictability.
But for investors who want to know about what the next big tech stock might be, you're not likely to find that in Berkshire's portfolio. Large, established tech stocks may find their way in, but that likely won't be the case with smaller, riskier investments. And this could mean missing out on a big growth opportunity.
3. By the time the 13F filings come out, the buying opportunity may be long gone
Buffett is a value investor at heart. If a stock's valuation is too expensive, he may end up passing on it despite strong fundamentals. And that's likely a big part of the reason investors have seen Berkshire's cash pile hit record levels of late simply because there aren't many attractive buying opportunities in the market today given how expensive many stocks are, as the S&P 500 continues to hit new records.
Good buying opportunities for Buffett-type investors may be few and far between these days. If you wait until Berkshire's 13F filings come out, a stock that Buffett has added may have already risen in value, and at a higher valuation, it may no longer be an attractive buy.
Investors can find their own Buffett-type stocks
If you want to invest like Buffett, you don't have to copy his stock picks; simply copy his principles. You can do that by focusing on stocks which are profitable and have attractive valuations, strong growth prospects, and a competitive moat.
There are many stocks which may be suitable for Berkshire's portfolio that Buffett doesn't own. By doing your own research and analysis, you can find good buys by yourself, and that can lead to better returns than if you just copied Buffett's latest moves.
