The Internet is filled with somewhat cheesy ads that promise to teach folks how to invest like Warren Buffett.
The appeal isn’t hard to see: Who wouldn’t like to parlay six shares of Cities Services preferred stock and a newspaper route in Omaha into a $70 billion fortune?
But even though Warren Buffett is widely considered the best investor in American history, there’s a better path for you to follow with your investment plan.
You have accumulated some capital already by following your instincts and doing the right thing at the right time. Successful people don’t need to learn how to be someone else. Teen-agers look silly when they dress up just like their favorite rap star. Investors look just as silly when dress up their portfolios to look just like the latest wealthy star of Wall Street.
Besides, you probably can’t invest like Warren Buffett or any other mega-rich investor even if you wanted to. As obvious as it seems, they have a lot more money.
And a lot more money means that the mega-rich are able to invest differently from the rest of us. They don’t simply invest; they control.
Consider: About five years ago, many savvy investors — Buffett among them — considered shares of American railways to be undervalued. Individual investors who liked the potential of railroads bought 100 shares of Union Pacific or a couple hundred shares of Norfolk Southern Corp.
Warren Buffett’s Berkshire Hathaway Corp. bought an entire railroad — the Burlington Northern Santa Fe system — for $26.5 billion. The value of an investment always is greater if the investor gets management control over the asset, but it’s a rare investor indeed who can follow Buffett’s multi-billion-dollar strategy to buy an entire railroad.
In fact, there’s a growing school of thought that Buffett’s path as an investor —rightfully the stuff of legend — may not be nearly as important to his success as his skills as a manager of the companies that he has owned for decades.
Even when the mega-rich don’t have control of their investments, they usually have advantages that simply aren’t available to individual investors.
Berkshire Hathaway, for instance, is the largest shareholder in Coca-Cola Co. — not a controlling shareholder, but the largest. Do you think that Coca-Cola CEO Muhtar Kent just might tell his assistant to accept calls from Warren Buffett and then listens closely?
Unless you have the resources to exercise management control — or something close to it — you’re not going to be able to emulate Warren Buffett, no matter how hard you try.
If you’re not able to follow the path of Warren Buffett, maybe you figure that you can become wealthy by following the path of Mark Cuban.
Cuban, perhaps best known as the owner of National Basketball Association’s Dallas Mavericks, caught the attention of investors with his aggressive style as a panelist on television’s “Shark Tank.” He’s invested in more than a dozen entrepreneurial startups whose founders have made a pitch to the show’s panelists.
In all likelihood, however, the total value of those “Shark Tank” investments account for little more than a rounding error in Mark Cuban’s total net worth of $2.5 billion. While he clearly hopes that one or two of the “Shark Tank” companies will be big winners, Cuban also is experienced enough to know that most of them will fail. And a portfolio of failed companies isn’t the ticket to wealth.
If you dig a little into the holdings of Mark Cuban Companies, you’ll find that the Texas billionaire is a big player in distinctly conservative investments — a chain of movie theaters, a group of women’s boutiques, an outfit that produces high-quality beef products. When Cuban bought 1 million shares of J.C. Penney stock a while back, the investment was on track with his general approach.
That approach is common among the wealthiest investors.
Entrepreneurs who built successful companies and created wealth for themselves know the value of a dollar. They aren’t willing to take big risks with the core of their investment portfolio. In fact, you can envision the portfolios of most wealth investors as a barbell. On one end of the barbell is a large mix of conservative investments designed to protect capital in goods times and bad. On the other end of the barbell is a much smaller pool of money invested into high-risk ventures that carry the promise of a big reward — or a big failure. Even if they get nothing out of a high-risk investment other than an amusing anecdote for dinner-party conversation, wealthy investors can afford to take a flyer now and then. But it’s not their core strategy.
Success in investment, like success in life, begins with self-knowledge and flowers with the courage to follow your own path.
As an investor, self-knowledge begins with an understanding of where you are headed. What are your financial goals? Providing a college education for your children that doesn’t leave them saddled with student-loan debt? A comfortable retirement? A meaningful legacy to the nonprofit organization that has meant so much to you?
Self-knowledge includes, too, an honest appraisal of your appetite for risk and your willingness to take losses as the price of a potentially large payoff.
It’s unlikely that you can come to accurate self-knowledge on your own. You will want to assemble a team that brings the expertise that allows you to follow the path that is right for you.
A trustworthy advisor who listens carefully will help you set priorities and determine the level of risk at which you are truly comfortable.
Skillful investment analysts who understand the true value of an asset will bring the insight that allows you to build a quality-oriented portfolio that will grow and change to meet your needs.
With the confidence to follow your own path, and the counsel of skilled and trusted advisors who show you the way, you will find the portfolio that is right for you, for today and tomorrow.
Joshua Barone has been the managing member of Universal Value Advisors since its inception in 2005. Prior positions include work as an M&A analyst in the community bank space and insurance sales both in property and casualty, and life and health.
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