We all know that most actively managed mutual funds simply don't beat the market over the long run. There are a few managers with genuine, consistent stock-picking ability, but those folks are far and few in between. And now, there's a fresh new embarrassment for the mutual fund industry: One very notable investor has left it in the dust over the past several decades.

Head of the class
As a recent Wall Street Journal article highlighted, Warren Buffett's portfolio gains over the past 45 years have beaten the returns of every single mutual fund in existence since that time. Buffett's Berkshire Hathaway (NYSE: BRK-A) has posted an annualized 22% return since 1965. The next-closest mutual funds in the game were Fidelity Magellan (FMAGX), which racked up a 16.3% gain, and Templeton Growth (TEPLX), which clocks in with a 13.4% average return during that time. Seeing these results makes one wonder -- are mutual funds in general just that bad, or is Warren Buffett just that good?

In fund managers' defense, the comparison is not completely fair. Buffett has quite a bit more freedom to invest than the average fund manager, who is constrained by a fund's objective and short-term investor expectations. And consider that the available universe of mutual funds was much smaller back in 1965 than it is today. According to Morningstar data, there are only 111 funds still around today that had an inception date of 1965 or earlier. But that still shouldn't detract from Buffett's impressive feat of single-handedly handing the mutual fund industry a stinging blow over the past four and a half decades.

Learning from the best
So does this mean that investors should chuck their carefully crafted asset allocation plan and throw their entire lot in with Buffett? Well, not quite. Despite the allure of Buffett's chart-topping track record, crafting a well-diversified portfolio is still the absolute most important thing investors can do to ensure long-term success. So that means a broad collection of stocks or funds, or both, is still your best bet. Buffett may be a part of that portfolio, but he shouldn't be the only part!

And even if investors can't directly replicate Buffett's amazing results over the past several decades, they can take some hints from his management style. One of the key tenets of his value-oriented process is a long-term buy-and-hold, low-turnover approach. Buffett has the luxury of managing for the long run, something fund managers can run into problems with because fund investors usually demand accountability for short-term underperformance.

Take a cue from the Oracle of Omaha and focus on the long-term picture. You're investing for a lifetime, not the next year or two. Try to ignore shorter-term trends. Buy stocks and funds that you want to own for a long time, and give the frequent trading a rest.

Likewise, Buffett's extensive track record points out the importance of something that should be foremost on investors' minds when making any kind of mutual fund investment -- manager tenure. A few years of good returns aren't a reliable indicator. You need to see stock-picking prowess in all types of environments -- good and bad -- over a long time to be able to identify true ability. When looking for actively managed mutual funds, make sure you're picking funds with a long-tenured manager or management team.

Buffett's stock tips
Investors who want to capture a little bit of Buffett's magic can also take some insight from the guru's current positioning. I'm not expecting big things from the stock market in general this year, so stock-picking will be vitally important if you want to eke out any meaningful gains. Apparently, Buffett sees a lot of value in the consumer goods sector now, because such names make up the largest allocation of Berkshire's portfolio right now. Companies like Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), and Kraft Foods (NYSE: KFT) rank among Berkshire's biggest holdings. I've been saying for a while now that high-quality blue-chip names are likely to come back into favor, and names like these are in an excellent position to benefit from a slow-growth economy.

Along the same lines, dividend-producing stocks can serve as further fuel for your portfolio in what is likely to be a low-return environment. Buffett has already stocked up on names like Wal-Mart (NYSE: WMT) and Johnson & Johnson (NYSE: JNJ), which offer fairly decent yields. Other high-yielding stocks outside the Buffett portfolio, such as AT&T (NYSE: T), can also help boost your portfolio's income power in a time when it's unlikely that stock appreciation will impress.

In the end, the fact that Buffett has managed to outperform the entire universe of actively managed mutual funds doesn't necessarily mean that the fund industry is a dud. More simply, it speaks to the incredible power of what a truly talented investing mind can do. There are other talents like Buffett out there, even in the much-maligned mutual funds industry.

If you want the inside scoop on where the next Warren Buffett might be hiding, check out the Fool's Rule Your Retirement service, which provides top-notch retirement and mutual fund advice. With a free 30-day trial, you can get the details on the best funds for your portfolio, along with first-rate advice to help you reach your goals. Odds are none of us will do quite as well as Buffett has in the past 45 years, but we can all take some important lessons from his patient and reasoned approach to investing.

Amanda Kish is the Fool's resident fund advisor for Rule Your Retirement. At the time of publication, she did not own any of the funds or companies mentioned herein. Coca-Cola is a Motley Fool Inside Value and an Income Investor pick. Procter & Gamble and Johnson & Johnson are Income Investor selections. Wal-Mart is an Inside Value recommendation. Morningstar is a Stock Advisor recommendation. Motley Fool Options has recommended buying calls on Johnson & Johnson. The Fool owns shares of Procter & Gamble. The Fool has a disclosure policy.