If you’re a novice investor looking into famous investors to model your portfolio after, Warren Buffett is probably one of the first people you looked into. According to Bloomberg, Buffett is considered one of the greatest investors of all time, and with good reason, as he is currently the eighth-richest person in the world. But should you be modeling your investment portfolio after his?
You should not copy Warren Buffett’s portfolio unless you have a net worth equal to Warren Buffett. Buffett’s high-value bank accounts grant him access to private equity, which is almost always a better deal for investors. Instead, you should build your portfolio based on your own goals.
This article will detail why you should not ever “copy” Warren Buffett’s portfolio. Studying his strategy and choices is a great idea, but mimicking it would be a mistake.
Why Shouldn’t You Copy Warren Buffet’s Portfolio?
Warren Buffett began investing when he was ten years old and became a millionaire by the time he was 30. According to Bloomberg’s Billionaires Index, Buffett’s net worth recently reached $100 million, as his holding company Berkshire Hathaway reached an all-time high.
The investing world has changed, but Buffett has changed with it, as evident in his annual letter to Berkshire Hathaway shareholders. He gives useful, applicable advice, and his letter is a crucial read for investors of all ages.
That said, copying his portfolio stock-for-stock would be a mistake. Here’s why you should avoid doing this.
Public Equity vs. Private Equity
The main reason you shouldn’t copy Warren Buffett is due to something called private equity.
Most investors only have access to public equity or shares that are available to anyone to own. So if you’re like most people, you’ll be dealing with public equity.
Private equity is not available to just anyone. Rather, these are shares that only certain prioritized investors qualify for, and are usually reserved for what are referred to as high-net-worth individuals or HNWI.
The power of private equity is increasing in the marketplace. According to a paper from the European Corporate Governance Institute, the number of companies funded with private equity doubled from 2006 to 2017.
The reason for this boils down to the principle of “high-risk, high-reward.”
They have higher risks, so they aren’t always winning investments for these individuals. The main thing is that these are not publicly available records, and you will never have the full picture of what is in Warren Buffet’s portfolio.
Private equity is very attractive for people of high net worth since they tend to have even greater returns than public equity. There are also fewer regulations surrounding them.
In short, Warren Buffet has access to a host of investments that the rest of us aren’t even able to see, which should make you take his public trades with a grain of salt.
Investment Is a Personal Thing
There is no right way to invest.
Some choices make sense for you that won’t make sense for somebody else in a similar situation. When different amounts of money are factored in, you can be investing with completely different goals in mind.
Warren Buffett is 90 years old and has a unique financial situation compared to every person on earth.
Older people tend to invest with different goals in mind than young people, so Mr. Buffet might be investing more defensively than a young person who wants to accumulate wealth would like.
His annual letter is a great insight into his thinking, but it’s no substitute to being in the man’s head or sitting in on meetings he has with his accountant. Ultimately, you need to base your investment decisions on yourself and nobody else.
Smart Investing Tips
So you can’t copy Warren Buffett’s portfolio. Now, what are you going to do with your investment portfolio and goals? Just because you can’t copy his portfolio, it doesn’t mean that you can’t follow some of his advice to build a great portfolio of your own.
Here are some smart tips for new investors, no matter what your bank account looks like.
Talk to an Accountant
The absolute best thing you can do for your portfolio is to speak with an expert. Of course, it costs money to talk to an accountant, but no service will help you earn money like this one, and you might get a free consultation.
Be completely transparent about your financial goals and situation, even the things you wouldn’t share with your family and friends. Then, if you want to get the most out of your portfolio, take a hard look at your bank account and decide what you want.
Look up accountants in your area, and consider meeting with a few to see what they advise you.
Don’t Watch Stocks Too Closely
There’s a difference between “keeping an eye on” your portfolio and “watching the stocks.”
Market trends are often fickle, and sometimes things that don’t make money immediately will make money a few years down the line. A huge event or major dip is different from a small bump in the company’s journey.
If you’re worried that this goes against Warren Buffett’s brilliant strategy, Markets Insider points to this Buffett quote: “Don’t watch the market closely.”
Many young adults start looking into investment strategy, become intimidated by the supposed complexity of the stock market, and give up, at least for a few years.
This is a mistake!
The longer you wait to start investing smartly, the more money you’re losing out on, which is why it’s critical to see an expert early on.
Warren Buffett started investing at ten years old. That means the rest of us had better get started!
Warren Buffett has earned his place in the annals of history as an investment legend.
It’s tempting to take his strategy literally and choose all the same stocks that he invests in. However, Buffett is a high-net-worth individual, and he has access to private equity deals that regular people will not have.
Even if you can’t copy Buffett’s portfolio, you should follow his general investment principles, which are quite uncomplicated. Start investing early and don’t follow the stocks too closely. As Buffett has also famously said, investing is “simple but not easy.”
- Wikipedia: Warren Buffett
- Bloomberg Billionaires Index
- Nasdaq: Got $3,000? 3 Unstoppable Stocks to Load Up On Right Now
- Berkshire’s Performance vs. the S&P 500
- European Corporate Governance Institute – Finance Working Paper No. 640/2019: Public versus Private Equity
- Markets Insider: Here are the 21 most brilliant quotes from Warren Buffett, the world’s most famous and successful investor
- CNBC: Warren Buffett: What He Does Is “Simple But Not Easy”