Should You Copy Warren Buffett?

Should You Copy Warren Buffett?

Yes, you absolutely should if you’ve done your homework and believe in the same companies that Warren Buffett has invested in. Same goes for Charlie Munger. No shame in being a copycat!

A lot of times in investing, we feel lucky and happy if we can manage to get a 10x (10 bagger) or 100x (100 bagger) on our investments. But if were so lucky to have invested in Berkshire Hathaway in the early 1960s, we would have had a multi-thousand bagger (54,875x $8 share price in 1962 = $439,000 A share peak price in 2021)! That was some incredible hockey stick compounding!

Berkshire Stock Price Chart 1960-2021
Berkshire Stock Price Chart 1960-2021

Pretty much no other company’s performance can compare to Berkshire’s long term investing track record. To put the power of compounding in perspective, for 55 years between 1965 and 2020, Berkshire compounded at 20% per year on average versus only 10.2% per year on average for the S&P 500. This means that Berkshire returned over 2,800,000%+ while the S&P 500 returned 23,500%+.

So if you had invested $10K in Berkshire A shares in 1965, that would have grown to $281 million compared with the S&P 500 coming in at $2.3 million.

All this amazing stock market performance begs the question, so why not copy Warren Buffett?

We could all look at Berkshire’s 13F quarterly report of all of its publicly traded US equity holdings that is filed with the SEC and is publicly accessible.

These 13F forms come out up to 45 days after the end of a quarter, so we could already be in the middle of the next quarter before we find out what some famous superinvestors are buying and selling as institutional money managers.

The 13F filings could be a gold mine of stock ideas that we may want to consider as potential investments we’d also like to make, but of course we need to do our own research and not just blindly copy what any other investor is also in.

You could be surfing for answers to this question like I was on the Internetz, and come across some interesting feedback like “Why don’t more investors copy Warren Buffett? Most people do exactly the opposite. And are surprised when they get the opposite,” someone wrote on Quora.

But then there are some fair questions like “Can Warren Buffett still beat the market?” since Berkshire’s recent performance has been trailing the S&P 500 in the last few years from what I calculated.

Although there’s been some under-performance in recent years, I still think for the long term Berkshire Hathaway could be really strong. Of course this isn’t investing advice, you gotta do your own due diligence and see what makes sense for you.

Warren Buffett and Charlie Munger have many disciples, including Mohnish Pabrai and Phil Town who encourage people to clone these legendary GOAT investors Buffett & Munger.

While the Internet is busy debating “should you copy Warren Buffett?,” like when I’m scrolling down some YouTube results and seeing a bunch of naysayers except for Mohnish Pabrai and Phil Town — Warren Buffett is busy cloning himself! Because he’s buying back Berkshire’s shares to the tune of $25 billion in 2020, and then so far in the first half of 2021 he may have bought back $12 billion, so he’d be on track for a similar amount of stock buybacks in 2021.

Buffett is wasting no time repurchasing Berkshire Hathaway, so it makes you wonder if it’s good enough for him, why isn’t it good enough for other people?

And if that’s not evidence enough, what I believe could be strong evidence for potentially copying Buffett is this study called “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway” that was originally published in 2005 but updated in 2008.

This study found that contrary to the popular belief that Buffett is a “value stock investor,” Berkshire actually primarily invests in large-cap growth stocks rather than value stocks. They found that Berkshire’s equity portfolio is concentrated in relatively few stocks with the top 5 holdings averaging 73% of the portfolio value (presumably from the period of 1976-2006).

If you made a copycat portfolio and invested in the same equities in the month after Berkshire’s holdings were publicly disclosed, you still beat the S&P 500! By mimicking Buffett’s investments and buying either Berkshire shares (11.4% over the S&P’s return) or Berkshire’s equity holdings (10.75% over the S&P’s return), you still outperformed the S&P 500 from 1976-2006.

The study included charts and tables of the returns for Berkshire, its equity holdings, the S&P 500, and treasuries for the 30 years between 1976-2006.

The S&P 500 proved to be more of a linear grower versus Berkshire which was more of an exponential grower during that period of time. Over 1976-2006, Berkshire Hathaway returned cumulative 943% (average of 30.43%/year), its equity portfolio returned cumulative 774% (average of 24.97%/year), the mimicking portfolio returned cumulative 762% (average of 24.58%/year), while the S&P returned cumulative 429% (average of 13.83%/year).

Some of the reasons for this out-performance could be because Buffett is buying cheap companies that are of very high quality. And Larry Swedroe believes these companies also have “low debt-to-equity ratio, low earnings volatility, and high asset turnover.”

There are many naysayers who give you many reasons not to copy Buffett or Berkshire Hathaway, but I provide facts and studies to show why it could be a good idea if something like Berkshire Hathaway or any of its equity holdings is on sale in the stock market.

But these stocks might not be on sale at this time. You can study it and figure out what price you should pay for it, if you believe in it.

Some of these naysayers say “it’s impossible to replicate” what Buffett did. I strongly disagree. We could buy other under-valued stocks and do our homework to figure out if companies we’re interested in buying have durable, competitive advantages (aka moats).

I share my rebuttals to these naysayers’ arguments as to why I am pro-cloning of Warren Buffett and those who invest like he does.

One of the naysayers’ arguments is about how Buffett wasn’t planning for retirement or an annual vacation. To this I say, he didn’t have to because he had already reached financial independence and could have retired early by his 20s.

Supposedly by the time Buffett was 30, he hit $1 million back in 1960. But that may have been in those days’ terms. So working backward if he had $100,000 in 1955 at the age of 25, this is equal to $1 million in 2021 dollars. So he’s been tap dancing to work ever since.

Aside from Berkshire Hathaway stock itself, consider if you are also interested in some of the same companies within the top holdings of Buffett (Berkshire) and Munger (Daily Journal Corporation), these are the picks that they really believe in. Ted Weschler and Todd Combs are like Buffett’s sidekick investors who tend to manage the smaller holdings of Berkshire while Buffett controls the top holdings.

But don’t force it if they don’t resonate with you. And past performance is no guarantee of future performance.

In conclusion: looking at 13F filings might give us some potential ideas of stocks we might want to copy from some of these legendary GOATs of investing.

I wish you well on your journey to being the best investor you can be!

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

I look forward to making more investor friends! Add me on Instagram: michellemarki! 😀