How to Partner with the World's Greatest Investors (without permission)
I recently posted an article about how copying Warren Buffett, or buying and selling the stocks that he bought and sold from 1976 to 2006, would have yielded something like a 20% average annual return as compared to 10% for the S&P 500.
In this article I want to lay out a few principles for leveraging the power of shameless cloning in 2019. It's easy to say that cloning Buffett for 30 years starting in 1976 would have been a brilliant strategy for growing wealth, now that he's one of the richest men in the world. But was it obvious in 1976 that this approach would have reaped such rewards? And with Buffett managing hundreds of billions of dollars today, and the associated limitations on prospective returns, is cloning still a viable strategy?
Even with those limitations, it's surprising how many top fund managers have Berkshire Hathaway as one of their largest holdings. We can do better. Here are a few promising characteristics to look for in a clone-worthy investment manager.
- Track record of 15-30 years. Less than 15 years is too short a timeframe to gauge investment skill. More than 30 years and they'll likely be managing too much money to be fishing in the ponds with the best opportunities for small investors.
- Style of making big and infrequent bets. Stock investments that comprise more than 10% of a manager's portfolio indicate a high conviction for that investment idea. Infrequent buying and selling is easier and more effective to clone, because there is a lag time between when the investment manager buys/sells and when we get to see that transaction through 13F filings.
- A temperament of patience. Charlie Munger says you don't make money when you buy a stock, and you don't make money when you sell a stock. You make money by waiting. It can take years for an undervalued stock to be properly priced by the market, and one of the most difficult tasks of the intelligent investor is to WAIT as a stock languishes for months or years.
My favorite investor to clone at the moment is Mohnish Pabrai, who was focusing on Indian equities for a while but has made some recent US investments.
What do you look for in a clone-worthy investment manager?
Financial and Accounting Executive
5 å¹´I view item three as a huge opportunity.? ?In the current culture of immediacy, few have the patience to stick with an idea through thick and thin. This in itself creates unbelievable opportunities. Being aware of our psychology and controlling our natural tendency toward moving in a completely different direction when something doesn't immediately bear fruit can destroy great ideas.? Most great inventions were developed by persevering and unwavering inventors that never gave up on their ideas, even under the continual skepticism of others. This is not to say those ideas always work out, but without perseverance there is no chance of success. Ultimately, if an idea doesn't work out in the end, we have obtained invaluable insights from our failures. The law of the farm has never ceased and it's relevancy to success in investing is timeless. ?
Engineering Manager | Investor | Mentor | Motivational Speaker | LinkedIn Top Voice - Team Leadership
5 å¹´1. Integrity 2. My own circle of competence 3. Checklist