– Are his strategies difficult to execute?
– Are those strategies not effective?
– Is he some super human with extra ordinary powers?
– Can he predict the markets much better than the others?
– Does Mr Market has some special liking for his cute personality?
– or he manipulates stocks for personal gains?
Most would agree – none of the above statements is true.
So, then why… why there is only one Warren Buffett (WB) ?
Intuitively, given that how much about him and his strategies is widely known, everyone should have been able to replicate his success. So then – what’s the reason?
As per WB’s Partner, Charlie Munger – “Because no one wants to copy them”
and I believe that’s actually the correct reason !
Let me try to highlight why I believe so –
1. His approach is too boring
- He buys for very-2 long term
- He buys into selective businesses in selective sectors, mostly ignoring the exciting emerging trends. This has resulted in him missing some fancied tech stories in the past e.g., Amazon, Microsoft etc.
As you would have guessed, above is rarely the approach of a normal investor.
Yes, many of us may time and again would have tried to follow his kind of approach but then dynamics of the market would have pulled us to divert.
- He can buy for decades and we most of the times don’t even have patience for months – especially when our friends stocks are performing better than ours.
- We love to predict and show our intelligence. E.g., I know that market is going to correct in the short term – so let me sell currently and I will buy back when it corrects. Result – long term investing remains on paper.
- He missed the whole technology run up. How could he? Let’s try to keep up with the times and identify the next 100 or 1000 bagger. So what if it’s a sector that I don’t completely understand. I have to evolve with time. I will learn and try to do my best. No one is perfect. E.g., renewables currently is becoming too difficult to ignore.
2. He buys businesses, we buy stocks
“His is an ownership approach, ours is an investing approach.”
and this creates huge differences –
- He is extremely picky and careful when he buys, whereas we are more relaxed when we buy.
- He doesn’t buy to sell. We always buy to sell.
- He buys only what he understands whereas we are open to experiment.
- He is least bothered about something that is not going to impact his ‘underlying business’ whereas we are bothered about everything and anything that will impact the ‘stock prices’. E.g., Financial crisis, North Korea dispute, Covid. Checkout how he acted vs what we did during those periods. Currently the same confusion is happening around Russia-Ukraine dispute and positioning against Fed tapering.
3. His annual average returns are ‘only’ 20%
This I believe is the most important factor.
In our mind, all of us know that it’s extremely difficult to consistently generate even 12-15% annually. Still when we see his 20% average annual returns, we feel we can outperform him.
Markets is all about hope and there are sufficient forces that make us target higher.
- There are multiple examples where other famous investors have generated higher returns e.,g., Peter Lynch (29% average over 13 years), George Soros (30% over two decades) and many more. If they can, why can’t we?
- WB’s strategy is not the only one to invest. There are others of all kinds – day trading, swing trading, technical, momentum, techno-funda, algorithmic and many more. There are number of other successful people who did very well following those and during certain time-periods generated very high returns – even in excess of 100% annually.
- Markets (like in last couple of years) further make us believe about the possibility. There have been multiple stocks that became 5x, 10x over the last couple of years. When compared with those, 20% looks small !
At first glance, some of you may not agree with the above reasoning. However, I am sure if you will think neutrally, you will agree to everything.
I have come to the above conclusions based on my own behaviour and of the others that I have observed and followed over the last 20+ years. All of us –
- Like excitement
- Love predictions and proving our intelligence
- In general set higher return targets
- Are too much into short term peer comparison/ index benchmarking
- Are fine operating outside our core competence and try to identify deep value buys, ride upon the short term strength in a sector and/ or new emerging trends
Are there exceptions?
Yes there must be some but they generally are not too visible/ active and therefore I might not be aware about them.
Does he have any advantages over others?
In my mind the only advantage – “he knows what he is doing and why.”
He has perfected the strategy based on his own aptitude. Whereas, we divert and don’t stick to our core strategy.
Some people say that he has natural advantages of having float from the insurance business, is investing for decades and has huge negotiation powers.
To me, that’s a false narrative – we are here talking about the approach and not how much absolute money he is making.
On the contrary, his size is a disadvantage for him. He cannot make too many small investments – pulling down his overall returns.
Does that mean “apna kucch nahin ho sakta”?
I never said that WB’s way is the only way to survive and thrive in the stock markets. The only point of this post was – why there is only one WB.
His approach may be the best proven one over the long periods. However, mine and your aptitude and attitude might not be suitable to follow it.
We may also do fine following a different strategy, provided we know what we are doing !
As is popular these days – “Apna time aayega”
I hope the above post was useful and you could relate with the observations.
Let me conclude by further improvising what Charlie Munger had said…
As per him, “No one wants to copy them”
For me …. because “Everyone wants to outperform them”
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