The StressTest column appears every Thursday on Fool.com. Check back weekly and follow @TMFStressTest.
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 Electric, Goldman 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.
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.
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.