My investment style is value investing, but in the way of Warren Buffett and Charlie Munger. It was passed down by Benjamin Graham to Buffett. Buffett, influenced by Munger, put his own take on it. There are many Gurus/Superinvestors who have followed this well beaten path and became very successful. There are even hundreds, if not thousands, of people we will never hear about that have followed this path and found success. Average people. People who are no longer dependent on a job and have the time, money and health to spend with their family. This was accomplished just by following what these gurus teach.
Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.Warren Buffett
Buffett says, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing”. This was proven when Gerald S. Martin and John Puthenpurackal published the paper “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway”.
The paper states that if all you did was mimic Buffett’s portfolio from 1976 to 2006, buying what he bought and selling what he sold on the last day of the month that it became public knowledge, that you would have had a compounded annual growth rate of 20.43%. The S&P 500 returned 12.86% during that same time frame. You would have outperformed the market 26 out of the 31 years. The paper also states that the average money manager would have beaten the market 15.5 out of the 31 years.
Beta and modern portfolio theory and the like – none of it makes any sense to meCharlie Munger
You could have brainlessly followed Buffett and outperformed the market and the majority of fund managers that believe in Efficient Market Theory (the crap they teach in school). This is what Charlie Munger has to say about EMT, “Corporate finance is beneath contempt. Believing just by buying volatile stocks you make an extra 7 percentage points per annum, I mean those people still believe in the tooth fairy and yet it is taught to children”.
The Great Gurus
Buffett is not the only person you could have followed and made returns similar to this. Anyone managing over $100 million is required by law to publicize their portfolio (a 13F filing) every quarter with the SEC. There is a handful of gurus who have followed the teachings of Buffett (the path) and made the same awesome returns as Buffett. Now they are required to publicize their portfolios. You could brainlessly follow any of these investors and make better returns than the majority of “professional” fund managers.
Even these investors, who are the best in the world, follow other great investors. I’ve heard it called coat-tailing by Buffett, cloning by Mohnish Pabrai and copycat investing by Phil Town. You don’t have to brainlessly follow them though. I plan to add in a little brain by following what all these investors teach.
How I Clone the Gurus
You can find 13F filings a few different ways. You can find them directly from the source at the SEC’s EDGAR website, but you just about have to be a lawyer to use the website from my experience. You can find them at other websites that compile this data in an easy to read fashion. The websites I use are Gurufocus and Dataroma. You have to pay for Gurufocus to access most of the features on the website, but I think the features are worth the money. I just don’t have the money to pay for it yet, so I use Dataroma for now. Dataroma is free with no features.
I know there are other investment styles like day trading, traditional value investing and index investing. Value investing in the way of Buffett and Munger is just the only way that makes sense to me. 95.5% of all daytraders fail. I have a long-term view, and by long-term, I mean 10 years. As Buffet says, “Only buy something you’d be perfectly happy to hold if the market shut down for 10 years”. I won’t own a company for 10 minutes unless I plan on owning it for 10 years.
This investment style has many names. I’ve heard gurus describe their funds as “event based”, “event driven”, “deep value”, etc. It’s not traditional “value investing” as Graham’s strategy was though.
I am going to go deep into research and find a few wonderful companies that are undervalued temporarily from an event. I will also do more speculative “other things” with a small portion of my portfolio as I learn them. These “other things” might consist of shorting, complex options trades, cryptocurrency, IPO’s, etc. Some gurus have their portfolios set up this way. I will also look to the gurus portfolio holdings as a foundation for mine by coat-tailing their investments, but with a brain by doing my own research to come to my own understanding of why they purchased the company and my own valuation of the company.
I am guaranteed to adapt and change as I learn. I will delve more into my investment style, how it changes, ideas and thoughts in other posts. This is just an overview of my way.
If you haven’t already, check out my previous post “This is Who I Am” to get a little understanding of my background.
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