Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
Three Reasons You Shouldn't Try to Invest Like Warren Buffett
https://mney.co/2mJEnUy
Required Please enter the correct value.
Twitter
Stocks: WMB

Three Reasons You Shouldn't Try to Invest Like Warren Buffett

Editor's Note: Keith follows six "Unstoppable Trends" in his Total Wealth research - trends that have made people rich for centuries (you can click here to get this service at no charge). In fact, these profit trends are so powerful that Keith is willing to put them up against Warren Buffett's performance any day of the week. See for yourself...

By Keith Fitz-Gerald, Chief Investment Strategist, Money Map Report • March 1, 2017

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Keith Fitz-GeraldKeith Fitz-Gerald

Legendary investor Warren Buffett released his annual letter to Berkshire Hathaway shareholders over the weekend, sending many "experts" and investors into a frenzy as they try mimic Buffett's investing style and, therefore, his profits.

But here's the thing...

You shouldn't try to.

I know that's heresy in an era when the Oracle of Omaha is rightfully lauded as one of the world's greatest, but simply mirroring what he does will not get you where you want to go. Chances are, it won't produce the returns he gets, either.

Here are three reasons you shouldn't try to invest like Warren Buffett.

Reason No. 1: Buffett Plays by Different Investing Rules

Warren BuffettIt's well-known that Berkshire Hathaway has averaged an annual return of about 20% in the 52 years since Buffett got to work there. According to Buffett's 2017 letter to shareholders, the company added more than $27.5 billion in net gains across 2016.

No ifs, ands, or buts about it... that's a fabulous track record over a very long period of time. It's consistent, it's undeniably robust, and it's worth noting that the S&P 500's average annual gain over the same time frame was only 9.9%.

However, it's also misleading.

There are dozens of books that will tell you Buffett has his method down cold and that he's a master at planning long-term moves and spotting undervalued companies with low-risk, high-upside prospects. And that's true.

He is.

But if Buffett were given a dose of truth serum before being asked to divulge his investing secret at a TED Talk, I suspect he'd give a one-word answer: leverage. Without that, his returns wouldn't be all that great. In fact, according to The Economist, they would have been "unspectacular."

People forget that Berkshire Hathaway, in addition to being a conglomerate holding company with a vast array of investments, is also an insurance company. Like all insurance companies, it commands a float - money that is counted twice because it's been paid out by insurance carriers, but will have to be returned later to pay out a fraction of premiums as required by law.

Berkshire Hathaway's float - which now stands at a formidable $84 billion - essentially functions as a massive pool of capital it can borrow at an estimated 2.2% interest. That's three full percentage points and then some below the going rate if you or I were to try and obtain similar financing, or the average short-term financing costs of the U.S. government over the same time frame, according to The Economist.

In other words, Buffett is banking the big bucks because he's leveraged up to his eyeballs and, like most insurance companies, has a really large investment company operating by virtue of the insurance premiums it collects.

Let me give you an example of what a difference this makes and why leverage is a dirty little secret.

Join the conversation. Click here to jump to comments…

Keith Fitz-GeraldKeith Fitz-Gerald

About the Author

Browse Keith's articles | View Keith's research services

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

… Read full bio

Login
guest
guest
1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
fallingman
fallingman
6 years ago

So, let's go back to the first trading day of 2000 and put $10,000 into Uncle Warren's stock. You'd have $47,000 today.

Now, what if you had put $10,000 into something that wasn't leveraged, required no management, had no counterparty risk, and no stock market risk? If the financial system's house of cards collapsed, it would do just fine and you'd have $43,100 today. Which would constitute the better investment … Berkshire … or gold?

Most would say Berkshire, because the return was marginally higher, but when you look at the relative risks, was it really the best choice? Looks like a no brainer in hindsight, because hindsight is 20/20. But you have to make risk-adjusted choices without foreknowledge.

Looking forward, with stocks at their highest valuations in history based on several metrics and gold wildly undervalued in purchasing power adjusted terms and as measured against the skyrocketing supply of "money" issued worldwide, which would you choose for the next 10 or 15 years? Keep in mind, Uncle disagrees with me on both scores. He says stocks are still relatively cheap … and he hates gold. Talkin' his book.

The truth is, Uncle underperformed gold right up till this last little frenzied run in the markets, and it's very likely he'll significantly underperform going forward. Why? Because the credit-based economy that served up such a nice environment for his companies for the last 40 years is now at the breaking point. And when it breaks, would you rather be holding real money … something rare … or the stock of sugary drink makers and airline companies?

Oh, and it won't be long before Uncle is pushin' up daisies. Have you seen what the man eats and drinks? It's a miracle he's made it this far. Gold will still be just an inert piece of metal, as dead as Warren … but here's the difference. It'll still be performing its function of a store of value in an unstable world.

0
Reply
LIVE
Visit Money Morning Live


Latest News

January 19, 2023 • By Money Morning Stock Research Team

These Stocks Could Go To $0

January 9, 2023 • By Money Morning Stock Research Team

The Government Is Pouring $391 Billion Into These Stocks - Buy Now

December 27, 2022 • By Money Morning Staff Reports

6 IPOs in 2023 You Can’t Afford to Miss
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Vega Burst Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz