Stop looking for "the next Warren Buffett" - the "Oracle of Omaha" cannot be copied
Every now and then, a hot new investor on the rise is crowned by the financial media as "the next Warren Buffett," followed by a disappointing performance that proves they're no "Oracle of Omaha." Sam Bankman-Fried, now facing criminal charges, is an extreme case.
But even beyond the disgraced founder of the FTX crypto exchange, others have suffered the curse of being hailed as The Next Buffett. Pershing Square's Bill Ackman, former Sear CEO Eddie Lampert, Social Capital's Chamath Palihapitiya have all been called "the next Warren Buffett" at one point or another in their careers, but none of their records come close to the 92-year-old's investing record. legend.At this point, investors can stop looking. "The next Warren Buffett" remains Warren Buffett himself.
Since taking control of Berkshire Hathaway in 1965, Buffett has proven himself sui generis—one of a kind, unique, in a class by himself. Why is Buffett so hard to imitate? His $800 billion Berkshire Hathaway conglomerate says it has doubled the average annual return of the S&P 500 since Buffett led the investment group that first acquired most of Berkshire during the LBJ years.
Today, Berkshire owns an incredible array of diverse businesses, from its insurance crown jewel GEICO to BNSF Railway, from nearly 6% of Apple to 100% of Dairy Queen, with many more. Its balance sheet is unmatched, bloated with about $150 billion in cash. That makes Buffett, a famous student of legendary Columbia University value investing professor Ben Graham, the most respected investor of his generation or generations to come.
"Berkshire's economic moat is more than the sum of its parts," said Greggory Warren, Berkshire analyst at Morningstar. That's because of Buffett's success in "combining the firm's financial strength and underwriting capabilities with his own investment acumen," he said.
In the midst of the Go-Go stock market in the 1960s, Buffett used an investment partnership he ran to buy a then-struggling New England textile company. Today, Berkshire is unrecognizable from what it once was and more successful than ever. The stock hit an all-time high just this week after Berkshire posted a record operating profit of more than $10 billion in the three months ended in June, boosted by a rebound in insurance operations.
The numbers speak for themselves. Berkshire's stock has generated an annualized return of 19.8% from 1965 to 2022, doubling the S&P 500's 9.9% return. Cumulatively, the stock has gained 3,787,464% since Buffett took over.
Whitney Tilson, CEO of Empire Financial Research and a Berkshire shareholder, has called Berkshire stock "America's No. 1 pension company" for years."It offers a unique combination of safety, growth and undervaluation," said Tilson, who has attended Berkshire's annual shareholder meetings in Nebraska for more than two decades. "Stocks should be the foundation of any conservative portfolio."
A huge pile of cash
Buffett has always focused on owning large amounts of cash, likening it to oxygen—a resource that can be quickly deployed when needed or opportunities present themselves. He said the large cash holdings are necessary as a duty to shareholders because Berkshire insures people and because it likes to maintain its independence in times of turmoil.
“Many, many people ... have staked their well-being on Berkshire's promises to take care of them, as I say, 50 years or more into the future,” Buffett said during Berkshire's 2020 annual meeting. “We always operate from a position of strength. ..We don't want to be dependent on the kindness of strangers, friends, even, because there are times when the money almost stops."
Berkshire's mountain of cash allowed Buffett to act quickly during the crisis. In 2011, Buffett put $5 billion into the troubled Bank of America in a big show of faith. After the collapse of Lehman Brothers in 2008, Goldman Sachs bailed out the company with a $5 billion infusion. In 1987 he saved Salomon Brothers from a hostile takeover.
"Berkshire has retained and expanded cash on its Fort Knox balance sheet, allowing for a unique ability to take advantage of opportunities in any downturn while virtually eliminating default risk," said Bill Stone, chief investment officer of Glenview Trust and a Berkshire shareholder. .
Palihapitiya recently expressed his admiration, calling Buffett "the greatest of all time" after analyzing his latest bet on Japan.The technology investor said that the five Japanese trading houses that Buffett invested in were good investments because they paid steady dividends and increased their profits, at the same time that Buffett was able to hedge currency risk by selling Japanese debt, with the difference between the dividends received on stock exchange investments and bond coupon payments Berkshire pays out.
"It's inspiring to see people behave this intelligently at scale," said Palihapitiya, who at his peak once compared his own return to Berkshire's.Many Buffett watchers marveled at the investor's focus on investing in Apple, which has grown to $177 billion, the largest holding in Berkshire's stock portfolio.
Although Buffett has famously avoided tech stocks and Apple has far from Buffett's expertise and comfort level, he likens the iPhone maker to a consumer products company and said he is also attracted by its large buyback programs. Apple has authorized the buyback of up to $90 billion of common stock in 2022 and again in 2023.Buffett's bet on Apple has earned Berkshire well over $100 billion since 2016.The next "Oracle of Omaha," whoever it is, can only dream of duplicating that feat.
In the world of investing, the name "Warren Buffett" carries an almost mythical aura. Often referred to as the "Oracle of Omaha," Buffett's unparalleled success has made him a legend in the financial world. However, the notion of finding "the next Warren Buffett" has become a futile pursuit. Trying to copy his investment strategies and replicate his success is not only impossible, but can lead to poor decision making. In this article, we'll explore why chasing the next Buffett is misguided and provide information on more effective investment approaches.
Uniqueness of Warren Buffett:
Warren Buffett's investment skills are the result of a combination of factors that are nearly impossible to replicate. His deep understanding of business fundamentals, his ability to identify undervalued companies and his long-term perspective set him apart from the average investor. Additionally, his decades of experience, extensive network and patience to weather market fluctuations are qualities that cannot be replicated overnight.
Pitfalls of Imitation:
Attempting to imitate the investment moves of the Oracle of Omaha can lead to significant pitfalls. First, the financial environment is constantly evolving, and what worked for Buffett in the past may not necessarily work in today's market conditions. Blindly copying his strategies without understanding the underlying principles can be detrimental to your portfolio.
Second, each investor has a unique risk tolerance, financial goals, and time horizon. What works for Buffett may not work for your particular situation. His investment style often involves long-term holdings of stocks, which may not be suitable for someone with shorter-term goals.
Invest in your understanding:
Rather than looking for the next Buffett, focus on developing your own investing spirit. Learn about fundamental analysis, valuation techniques and risk management. Understand the industries and companies you are interested in and make informed decisions based on your research.
One of the basic principles that Warren Buffett himself emphasizes is the importance of diversification. While he has a concentrated portfolio, he's also quick to mention that individual investors should spread their risks across assets. This approach helps mitigate the impact of market downturns on your overall portfolio.
The "Oracle of Omaha" is a unique individual with unique experience, knowledge and a distinctive investment approach. Rather than trying to copy Buffett's strategies, focus on building your own understanding of the market, honing your skills, and developing a diversified investment strategy that aligns with your goals and risk tolerance. Remember, trying to be the next Warren Buffett is fruitless, but the path to becoming a successful investor is one that you can uniquely create for yourself.
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