Everybody wants to invest like Buffet

[LooseCannon101]

Why is it considered odd to have a long term, buy and hold philosophy?

Wall Street and The City publish quarterly company earnings forecasts for speculators, but real wealth is usually achieved by a patient, get rich slow policy.

[LongbeardRanger]

The article actually seems to be about private equity firms marketing funds with a longer average hold period than the current standard model (where the investment fund has maybe a 10 year expected life, within which investments have to be identified, deals closed and then exits found). So, maybe a 3-5 year average hold period for actual individual companies.

However, given that the article then talks about a 10 year hold period, it still seems very, very far removed from what Buffett does at Berkshire. When he buys entire businesses (as opposed to stocks) he holds them essentially forever. They become permanent parts of Berkshire.

So, an interesting article, but still pretty far removed from the Berkshire model.

It's yet another example of people talking about doing the same things as Warren, but not actually doing the same things as him. This is so common - you see it time and again. People quote him, say they have a similar approach, but then you see them with large numbers of holdings, trading frequently and having high portfolio turnover...

[moorfield]

It's yet another example of people talking about doing the same things as Warren, but not actually doing the same things as him. This is so common - you see it time and again. People quote him, say they have a similar approach, but then you see them with large numbers of holdings, trading frequently and having high portfolio turnover...

What is rather less well known and not mentioned in the article is Buffett's use of short put options (despite calling them "weapons of financial mass destruction") which work a little like writing insurance premiums, and most private retail investors generally don't have access to.

[LongbeardRanger]

It's yet another example of people talking about doing the same things as Warren, but not actually doing the same things as him. This is so common - you see it time and again. People quote him, say they have a similar approach, but then you see them with large numbers of holdings, trading frequently and having high portfolio turnover...

What is rather less well known and not mentioned in the article is Buffett's use of short put options (despite calling them "weapons of financial mass destruction") which work a little like writing insurance premiums, and most private retail investors generally don't have access to.

Sure.

And of course he also gets the benefit of investing large amounts of insurance "float", so effectively he's using borrowed money to invest, with the important difference that he gets paid to borrow the money! Again - not something that most people can do, obviously.

You're right he's used derivatives at times, though I've never thought he was inconsistent here - he was, I think, correct about the dangers of derivatives generally, but he wasn't saying they should never be used, and so far as I can see his / Berkshire's use of derivatives has always been sensible, logical and safe.

Incidentally, one point that you don't often see mentioned about Buffett is how big a position he has taken in the banking industry - and how banking has been an important area of investment in Berkshire's history, too. Currently, Berkshire has large positions in:

- Wells Fargo
- U.S. Bancorp
- Bank of New York
- Bank of America
- Goldman Sachs

And in the 70s / 80s, it made a lot of money owning the Illinois Bank and Trust Company (eventually spun off to shareholders for regulatory reasons).

There's a lesson in there somewhere about the fundamental attractiveness of banking as an industry, IMHO.

[SalvorHardin]

Private investors cannot hope to copy Buffett's methods in full. For one thing they don't control billions in insurance float or have his contacts and reputation to attract the sellers of family-owned businesses.

The easiest way to come close is to buy Berkshire Hathaway shares and don't sell them (I've held some of my holding for over 20 years). Then buy shares in companies with strong moats and hold onto them. Time is the friend of a wonderful business and the enemy of a weak business.

Unfortunately most investors can't do this. They lack the self-control and are easily swayed by short-term news and events which are reported nowadays by an increasingly manic-depressive financial industry whose main purpose is to encourage trading activity, not long-term buy and hold. Many investors always want to be in the latest hot sector, which involves regularly switching holdings and thus incurring transaction costs.

In the late 1990s during the dotcom boom many of my colleagues were throwing money away on wildly speculative dotcoms, almost all of which turned out to be members of the 90% losers club. At the same time I was buying strong moat "old economy" companies like Unilever and Union Pacific (and of course more Berkshire) which I have never sold and have gone from strength to strength.