Tuesday, January 27, 2009

Copying Buffett's Picks

Geoff Gannon made a post on how to copy Buffett today. It started like this:

Warren Buffett is best known for his work at Berkshire Hathaway (BRK.A) where he grew book value per share 21.1% a year over the last 42 years.

But Buffett was a money manager long before he was a CEO. He earned his super-investor stripes by running an investment partnership. Buffett Partnership Ltd. beat the Dow every year from 1957 to 1969, never had a down year, and posted annual returns of 29.5% a year. The Dow managed just 7.4%.

Those numbers are phenomenal. And Buffett’s record is all the more phenomenal for its length. How many investors have a track record stretching back half a century?

But past results are no guarantee of future returns. And Berkshire’s size is a guaranteed headwind. So can you really Buffett-back ride your way to investment success? Maybe. But there is a right way to do it and a wrong way to do it...
Though he doesn't go into a ton of detail, he does make two important points.

The first is that piggy-back riders should distinguish between the common stock they can buy and the deal that Buffett got if he bought the preferred. Secondly, he thinks you should pay attention to where Buffett is putting a significant amount of his money--and right now that means Burlington Northern.

The article can be read in full at Gannon on Investing.

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